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Despite the growing recognition of digital tools’ potential in logistics, a significant 87.5% of organizations fail to meet
Logistics management has become the backbone of every business, especially in today’s complex supply chain networks, it plays a crucial role in fostering growth and ensuring customer satisfaction. Today’s business organizations, especially the ones willing to go the extra mile to accelerate development, are finding a plethora of untapped opportunities in this segment of operation. It is crucial to recognize that Logistics management is not merely a set of sequenced events that can be performed more efficiently with a well-defined SOP; it faces continuous demands for change and innovation; often triggered by changes in Govt policies, technological standards, distribution mix & scale, demography, product segment, target customer and multiple other factors. Within such an atmosphere, Logistics unfolds as a continuous cycle, encompassing various sub-processes, ranging from procurement to invoicing.
Just skilled resources alone are often insufficient for managing Logistics in today’s world. It requires tools to enable automation, end-to-end visibility, and all-hand collaboration, to achieve cost optimization targets. This is the reason why Digital Logistics Solution platforms like TMS or WMS are becoming a trend.
In this blog, we will discuss Freight Sourcing and Contract Management, a small but prominent segment of Logistics Management. We will delve into the distinctions between various forms of Freight Sourcing, discuss a strategy to adopt, and then move to understand how a digital platform compliments it.
Freight sourcing is a nuanced process that involves identifying, selecting, and securing the necessary transportation services for the seamless movement of goods between locations. The procedure is all-encompassing, incorporating negotiations with carriers, assessment of optimal routes, and the selection of the most cost-effective and efficient means of transporting goods.
Freight sourcing has a direct influence on critical factors such as transportation costs, delivery timelines, and overall logistics efficiency. Companies actively engage in freight sourcing initiatives to ensure the punctual, reliable, and cost-effective transportation of their goods, thereby making a substantial contribution to the overall success of their supply chain operations.
Types of Freight Sourcing:
Spot procurement refers to acquiring vehicles for goods movement on a shorter advance notice or ad-hoc basis, as and when required.
This method is best suited for complying with:
Businesses often need to transport time-sensitive goods, thus requiring on-time vehicle placement. Spot sourcing enables quicker access to available resources around, ensuring tight delivery deadlines are met without hassle.
Businesses operating in a volatile industry should always be prepared to handle unpredictability. In such scenarios, spot freight procurement enables them to quickly adapt to sudden changes in demand and find appropriate vehicles to cope with increased volumes of goods without long-term price commitments.
Industries such as e-commerce and retail often face a change in demand due to external factors such as festivals or trend fluctuations. This module provides a solution for fulfilling their seasonal ad-hoc requirements without the need for long-term contracts.
In some cases, spot procurement can lead to cost savings, especially when transportation rates are lower than usual or sudden emergence of cost-effective alternatives.
This sourcing method is a strategic step for companies aiming to scale their businesses across a new geographical area. Procuring carriers on a short-term basis can help them understand and allow time to plan their long-term transportation strategies.
Contract-based freight procurement allows businesses to rely on one or more transporters for their regular transportation requirements, ensuring stability, consistency, accountability, and long-term commitments in their transportation and supply chain operations.
This module is best suited for ensuring:
Contract procurement empowers freighters with bulk buying advantage and strategic negotiation opportunities allowing greater cost control. This, in turn, helps businesses reduce the risk of cost escalations, ensure competitive rates, and ensure compliance with the logistics budget.
Businesses with predictable shipping needs benefit from long-term contracts with pre-defined transportation volume limitations. These aspects provide assurance to businesses and ensure smooth transportation operations.
Service contracts typically contain service-level agreements (SLAs) that outline and guarantee the expected service levels and performance, obliging carriers to adhere to them. For instance, when transporting hazardous materials, chemicals, pharma products, excised goods, etc. transporters must abide by specific regulations.
The contract procurement fosters dependable and consistent relationships between shippers and carriers. It helps to build trust and promotes optional benefits with transportation providers, ultimately improving operational efficiency and resilience.
Organizations using this method of freight procurement can reduce the risk across the supply chain. This approach helps the company to become more resilient to fluctuations in the market, transportation disruptions, and capacity shortages. Ultimately, this leads to a competitive edge.
By utilizing contract freight sourcing, businesses can plan their procurement, logistics, and supply chain management for the long term. This approach enables them to gain valuable insights into transportation modules and align their strategies with their overall business objectives.
A hybrid model offers the best of both, spot and contract-based procurement methods. This approach enables businesses to leverage the flexibility of spot procurement while enjoying the stability of contract-based pricing, contributing to seamless placement, and cost efficiencies.
This method is best suited for ensuring:
With this module, businesses can improve their supply chain flexibility to suit the needs of a constantly evolving industry better. Logistics managers can utilize various modules depending on the shipment’s nature and volume, industry fluctuations, and any unpredictable needs that may arise.
Logistics managers can establish a varied transportation network through this method, ensuring prompt access to transporters, even during peak periods.
Using spot logistics can speed up cost savings while relying on contract-based sourcing can enhance cost control by offering fixed rates for a set duration. This approach facilitates strategic financial planning and budgeting.
A hybrid procurement model with the benefits of spot logistics offers valuable market intelligence. It helps shippers monitor spot rates, providing insights into market trends and negotiation aspects to make informed decisions.
Businesses can align their logistics operations with sustainability standards that are followed throughout the industry by adopting a well-balanced transportation module. They can positively contribute to environmental initiatives by strategically optimizing their routes without compromising operational stability.
Transport set-up is constant but an effective sourcing plan can help businesses yield maximized benefits. Choosing the right vehicle procurement method is vital for on-time vehicle placement, improved OTIF, increased customer satisfaction, and risk mitigation. Analyzing the advantages of all three models can help businesses select a suitable one as per their organization and supply chain objectives.
| Spot | Contract | Hybrid |
| Best for time-sensitive goods | Capacity and SLA assurance | Flexible to industry dynamicity |
| Caters to demand fluctuations | Long-term trust and stability | Diverse transportation network |
| Suitable for seasonal needs | Risk mitigation | Market intelligence insights |
| Cost savings | Cost control | Cost efficiency |
| Ideal for geographic expansion | Long-term planning | Sustainability initiatives |
Businesses can enhance their placement efficiency of acquired vehicles via the following parameters.
Digital TMS solutions enable single-window collaboration and real-time data exchanges on inventory levels, shipments, order statuses, and more to ensure efficient spot procurement, contract management, and vehicle placement. It empowers the supply chain with the following:
Holistic coordination and data sharing across vendors, drivers, and shippers reduce lead times and minimize transportation and warehousing costs.
Joint planning, automated alerts on risks, data interchanges on route optimization, and contingency enable quicker response to unforeseen disruptions and fluctuations.
Suppliers, manufacturers, and distributors can collectively gain insights into inventory levels and take strategic measures to reduce overstocking and stockouts, improving cost savings and customer experience.
Organizations can undertake collaborative initiatives to implement eco-friendly transportation options with AI-driven route optimization, vehicle utilization, carbon emission tracking, and compliance with industry regulations on sustainability.
Improve customer trust and retention with reliable and faster order fulfillment.
The digital solutions enable data analytics to track compliance with industry, trade, and logistics regulations on customs, safety, and security requirements.
The digital landscape unlocks a plethora of innovation opportunities to yield transformational growth, efficiencies, and cost savings.
A TMS-driven, seamless supply chain ensures stability, positive relationships, and mutual trust across suppliers, carriers, and other stakeholders for accelerated success.
Digital TMS solutions are a strategic measure in modern logistics. These solutions utilize advanced technologies like AI, ML, and business intelligence to balance service efficiency with cost-effectiveness for all three modules.
It unlocks a plethora of opportunities with real-time collaboration and EDIs across a complex web of stakeholders, process automation, holistic visibility and control, audit logs, and better compliance with sustainability measures. TMS-based vehicle procurement empowers decision-making, operational efficiency, and revenue dynamics in a competitive and volatile industrial environment.
Abhijit Medhi
Supply Chain Director, SuperProcure
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