By Omar Singh, president and founder, Surge Transportation
The most well-designed routing guides are going to fail. Even seasoned supply chain teams and managers working with a roster of reliable service providers are going to design routing guide failures into their transportation execution strategy.
When I first started writing and speaking on this topic, national tender rejection rates were around 10%. Currently national tender rejection rates are hovering around 40% and projected to stay this way through 2023! The traditional way of handling rejections is to send loads to spot auction, which is known for volatile prices and service levels. Given that we may be missing the mark 40% of the time for the foreseeable future, it is important to at least have a look at the causes of routing guide failures and understand why they are considered to be industry best practices.
This article discusses three common pitfalls that create gaps in routing guides in order to highlight the need to develop a plan to secure extra capacity at times. The actual point is to suggest that there is an unfilled space between the end of the routing guide and the auction system that deserves a strategic design. Even a quick review of these pitfalls will hopefully spark a conversation about how to develop a business continuity strategy and what it should look like for your organization.
The first common pitfall is that forecasts are linear but demand is not. I actually think of this as the first commandment of routing guide failures — we can stay on this point for the rest of our entire careers: square peg meet round hole. Shipment volume awards are calculated annually, but demand fluctuates daily and weekly — linear annual award vs. nonlinear weekly demand. Consumers do not always buy the same amount of product on the same day spaced out evenly throughout the year. Therefore buyers do not order the same amount of inventory to be delivered on the same days spaced evenly throughout the week or year.
Generally, routing guides estimate annual volume then divided by 52 to forecast weekly demand and sometimes then divided by 7 to forecast daily. However, we’ve all experienced that the math isn’t always that easy — buyers don’t smooth their orders the way shippers and carriers balance their routing guides evenly. Box stores and club stores are notorious for ordering their entire week’s worth of product on the same day. So the shipper knows that on average there will be 21 shipments on that week and secures carriers to give them three trucks per day for seven days, then the store asks for all 21 to be delivered on Monday — meaning you need 21 trucks picking on Sunday, when drivers are resetting their hours of service and watching the game. Carriers are left with no choice but to say “I ain’t got 21 trucks today, but I can give you the three that I committed.” The customer has 18 too few trucks on Sunday and the carrier has 18 too few loads during the rest of the week. This is a perfectly executed routing guide.
The second common pitfall — albeit completely reasonable — is that service providers are expected to accept about 95% of the tenders offered to them — also known as compliance to award (CTA) or tender accept compliance (TAC). Depending on the relationship, the range is actually somewhere between 92% and 97%, but let’s stick with 95% and keep the focus on institutionalized routing guide failures and the need to have a business continuity strategy in place.
Whatever the true percentage is, rejections happen at the least convenient times. Look, 95% is an A-plus on any student’s report card, just as it is on any carrier’s scorecard. It’s a really good number. We know it’s impossible to be perfect but we want you to be really close, like 95% of the time — you’ll get into good colleges and get steady business from your shippers. If you are in the 95th percentile for just about anything you do in life, you are best in class. However, it doesn’t change the fact that it means shippers will have institutionalized 5,000 rejected shipments for every 100,000 loads. Five thousand times that alternative capacity needs to be sourced; every single one of these shipments has the potential to become a problem. If tender rejection rates stay at 40%, you’ve got 40,000 problems but TAC ain’t one. This is a perfectly executed routing guide.
The third common pitfall is the carrier’s standard requirement to provide 10-20% more capacity than its annual commitment during each customer’s busiest time of year. That’s like putting 10% more water into a glass that is already full. Asset-based carriers provide pricing to customers based on fixed and variable costs that rely on maximum asset utilization. Translation: They don’t have 10% idle capacity waiting around. Yet it is built into the master transportation agreement, and agreed upon by all parties, as if it were actually executable for the purpose of just saying that we have a perfectly executed routing guide, RFP complete, go home, we don’t need a business continuity plan because our carriers are going to give us 20% surge capacity.
Most shippers are busy at the same times of year in any vertical market. Beverages are busier during the summertime, consumer packaged goods and retail are busier during Q4 — sometimes carriers can balance this with their commitments a little bit. But the reality is that for every 10 customers a carrier works with that require the 10% surge capacity, the carrier needs 100% more trucks; yet we just write it into the agreement as if it were possible — but it ain’t. This is a perfectly executed routing guide.
Given that these pitfalls are built into the routing guide and partnership strategy, I would argue that the failure doesn’t occur at the level of the load or lane failing, it occurs at the level of the contingency design, or lack thereof. There is a space between routing guide failure and auctioning off thousands of loads that deserves attention. What is the established plan devised to account for the fact that you are going to need routing guide assistance 5-10% of the time? Who is the partnership strategy with? Are there conflicts of interest in the strategy? Is it transparent? Does this provider have a strategic track record?
Since these rejected difficult loads take the most amount of work, and are the most expensive to move, I would argue that a considerable amount of time be dedicated to the contingency design and partnership strategy. This is a perfectly executed routing guide.
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