Freight Procurement: Importance, Opportunities & Challenges

John Doe
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5 min read

Supply Chain Management forms the backbone of organizational success, serving as a detailed map for each step of business operations. 

From suppliers providing raw materials to customers receiving the end product, various factors contribute to the smooth flow of the supply chain, crucial for an organization's seamless operations.

One key player in this process is Freight Procurement, a pivotal element that wields considerable influence on the overall efficiency of the supply chain and, by extension, an organization's operations.

Today, we’ll uncover the nuances of freight procurement, from its definition to its impact on logistics, the current state of affairs, and how to leverage technology to overcome challenges in this ever-evolving landscape.

Right then, let’s get right in!

What is freight procurement?

Breaking it down to its roots, the term comprises two key elements: 'freight' and 'procurement.'

In the realm of transportation, 'freight' refers to the compensation paid for the transportation of goods, or the goods themselves, to be transported via air, surface, or ocean transport. 

On the other hand, 'procurement' is the process of purchasing or sourcing goods and services.

Combining these elements, freight procurement is the process of strategically finding suitable avenues for an organization's transportation needs. 

It's about securing the most efficient and cost-effective means to transport goods, ensuring a smooth and optimized flow throughout the supply chain. 

The relationship between freight procurement and logistics 

Effective logistics management goes beyond simply moving goods from point A to point B. It involves identifying the right transport partners, cultivating strong relationships with them, and ensuring a reliable backup of partners. 

This strategy prevents over-reliance on the lowest-cost transporter, guarantees the use of appropriate truck types, and manages the nuances between planned and actual dispatches.

A well-defined freight strategy addresses these logistics intricacies and empowers organizations to use their resources effectively, balancing cost considerations with reliability and adaptability. 

The steps taken in freight procurement directly influence the efficiency or complexity of the supply chain. It serves as a robust pillar, shaping the dynamics of the supply chain.

The current state of logistics operations 

Since the inception of FreightFox, our team, led by Founder and CEO Nitish Rai, has engaged with numerous logistics professionals and industry leaders, offering valuable insights into the current state of logistics operations. 

Drawing on his extensive experience of over a decade in the manufacturing industry and his interactions across various sectors, we have gained a unique perspective on how enterprises in India manage their freight spends and operations.

In this landscape, the logistics costs fluctuate significantly, ranging from 4% to 25%, depending on the industry—ranging from core to heavy industries, e-commerce to direct-to-consumer (D2C) models. 

Despite this variance, we have observed a common challenge. It revolves around highly restrictive manpower within organizations, burdened with manual processes. These processes include phone calls, spreadsheets, paperwork, and people coordination. 

All of these manual tasks are crucial for executing logistics and delivering goods. Ultimately, these challenges contribute significantly to the overall sales and revenues of the organization.

In an era where mass customization aspirations are prevalent, logistics and supply chains have become crucial distinguishing factors. As businesses compete for superior customer experiences, logistics operations' effectiveness plays a central role.

As Manjari rightly points out, "It's one thing to make the goods, but a very different ball game delivering them." 

This sentiment underscores the critical importance of refining and optimizing logistics operations for sustained business success in a competitive market.

Why is freight procurement critical today?

A resilient logistics strategy is crucial for today's enterprises to achieve goals and aspire to be market leaders. However, the alignment of objectives within the supply chain, procurement, and logistics teams often leads to conflicts. 

Imagine a scenario where a truck can carry 1000 SKUs, but the sales team demands only 800 SKUs. The varied responses from stakeholders across the chain highlight a paradox in enterprise priorities.

This brings us to the question: What's your freight procurement strategy? If it involves traditional approaches like email RFXs and Excel negotiations, it may fall short of delivering optimal results. Organizations invest significant budgets to address logistics needs, yet inefficiencies persist.

With that said, freight procurement is crucial today because it's the backbone of smooth logistics. In simple terms, logistics is how we make sure things get from point A to point B smoothly. And for that to happen efficiently, we need effective freight procurement.

Now, let's explore why freight procurement is critical today.

Why freight procurement is critical today
  • Operational efficiency: If we want things to move without a hitch in the supply chain, we must choose the right partners. Freight procurement ensures we've got the right transportation partners to keep everything running smoothly.
  • Cost optimization: With logistics costs being a bit unpredictable, smart freight procurement helps us cut down on unnecessary expenses. By planning well and teaming up with the right partners, we can keep our budget in check.
  • Customer satisfaction: On-time delivery is a big deal. Freight procurement ensures our customers get what they ordered when they expect it. Happy customers mean a happy business.
  • Adaptability to market dynamics: Markets change all the time. Freight procurement provides the agility needed to respond to market changes effectively, enabling organizations to stay ahead of the curve.
  • Competitive edge: In a competitive market, standing out is crucial. Effective freight procurement not only optimizes costs but also positions businesses with a competitive edge. A well-orchestrated logistics strategy becomes a key differentiator in a market where customer expectations are high.

Freight procurement challenges faced by organizations

Despite the crucial role of freight procurement in organizational success, it's surprising to find that many still rely on outdated methods, attempting to excel using Excel. 

Manual processes involving calls, emails, and tracking data in spreadsheets not only create confusion but also limit learning from past experiences, as there's no effective way to analyze patterns or trends.

Here are a few major challenges organizations face in ensuring the smooth flow of their freight procurement processes.

 Freight procurement challenges
  • Lack of real-time visibility: The absence of a real-time view of freight spend analytics hampers the ability to proactively identify anomalies by comparing them with previous years/periods.
  • Limited transport partners: Many organizations operate with a restricted pool of transport partners, limiting the potential for value discovery.
  • Insufficient strategic data: Lack of comprehensive data on transport partners, including their strengths, weaknesses, opportunities, and threats (SWOT), hinders informed decision-making.
  • Static strategies: Overreliance on one-time contracts, which statistically tend to fail within three months, contributes to the inflexibility of freight procurement strategies.
  • Spot procurement neglect: Spot procurement of freight capacity is not given sufficient importance, often becoming a critical consideration only during emergencies.
  • Data gaps: Unavailability of real-time data on the active fleet mix, operator mix, operational performance, and financial performance creates challenges in updating Business-Cost Escalation risks.
  • Poor supplier relationship management: The lack of regular and engaging dialogue with transport partners leads to ineffective supplier relationship management.
  • Digital adoption: The slow adoption of digitization and data-driven decision support systems hampers planning efficiency, resulting in phase lags.
  • Forecasting challenges: The absence of proactive load and truck forecasting, coupled with a lack of information to transport partners, leaves little room for accommodating turbulence or disruptions.
  • Emergency preparedness: The lack of a Freight Emergency Drill as a practice exacerbates challenges in addressing sporadic disruption events, such as geo-political tensions, environment-related policies, and more.

How to mitigate freight procurement challenges with the right technology

To effectively address the challenges in freight procurement, it's crucial to recognize the three major elements of the real freight value discovery triangle:

  • Context: Understanding the specific context of your logistics operations.
  • Communication: Ensuring clear and effective communication throughout the procurement process.
  • Content: Having the right content and information to drive superior value discovery.

Summing it up, Context + Communication + Content are the keys to generating interest and achieving promising value discovery. To seamlessly execute this triangle, the deployment of the right technology is essential. 

Today, there are various tech solutions and platforms available, but the question remains: Which one is best for you?

Freight procurement demands a specialized platform capable of handling the complexity of data and elements involved. The digitalization process must be detailed and problem-specific to avoid potential pitfalls and maximize benefits.

Choosing an agile procurement solution with network visibility, the ability to conduct various types of contracts, external freight market benchmarking, and active intelligence is crucial. 

The selected platform should grant access to a qualified pool of transport partners with due diligence in place, and the solution team should possess a good understanding of strategic freight procurement frameworks.

Here are some questions to help determine the right freight procurement solution.

  • Do you have enough bandwidth from routine operations to focus on freight procurement and market discoveries?
  • Do you possess well-defined data for the past 2–3 years for proper assessment and analysis?
  • Can you independently reach out to over 1000 potential transport partners?
  • Do you have access to important pointers about the transport partner pool you want to engage with?
  • Do you have the right data technology, visualization, and eRFx platform for the procurement event?
  • Do you possess a detailed thesis with data on external freight market intelligence and data-driven benchmarks for your current operations?
  • Can you conceptualize, design, implement, and handle a complex multi-stage eRFX and bidding process with your team?
  • Do you have access to the right tools and strategy frameworks for planning effective enterprise freight procurement?

Self-assess your answers with your team, and after a thorough discussion, the clarity on the right freight procurement solution for your needs should become evident.

Practice effortless and efficient freight procurement with Freightfox

As we wrap up our exploration of freight procurement, it's evident that traditional approaches fall short in the evolving logistics landscape. This is where Freightfox comes in as a practical solution reshaping how enterprises like you approach logistics challenges.

Our tailored transporter base ensures relevance and expertise, with pre-trained partners for a seamless experience. 

Our platform's analytics provide real-time market insights, and its configurability allows businesses to prioritize what matters most, be it cost, service, capacity or sustainability.

With our tailored solutions and analytical edge, Freightfox is your go-to for efficient and effective freight procurement. It's a practical step toward navigating the complexities of logistics in today's landscape.

Get started with us today to see how we can help you streamline your freight procurement effortlessly! 

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