It’s tempting to think of freight services as interchangeable and to focus on cost when selecting a transportation provider. But practical experience demonstrates over and over that chasing the lowest price for freight can leave you high and dry in a tight-capacity market as well as expose you to a host of other risks that can impact your bottom line.
We believe a more informed approach is the one that works best. Below, we list some of the advantages of single sourcing over rate shopping.
First, let’s be clear what we’re discussing here. Single sourcing, in its most basic form, is putting all your transportation and supply chain needs under one roof and partnering with one company to provide you the solution to anything you need — whether it’s mode, service, or reporting.
Rate shopping, on the other hand, means you’re using a variety of different providers and wrapping them up into your network. This likely involves farming out different lanes or getting one company to handle all LTL while another does full truckloads, with each company doing separate freight audits that you then collate in-house.
Here’s why single sourcing is the way to go.
1. It’s Better to Have a Partner Than a Vendor
When we talk to companies that are considering a change from transactional pricing to single sourcing, we like to define the difference like this:
When you have different agreements with 3PLs or transportation providers, you’re involved in a supplier-vendor relationship that involves a constant series of transactional interactions – each deal is separate to any other deal.
single sourcing partnership vs rate shopping
But when you opt for single sourcing, you’re in an entirely different relationship that’s much more based in partnership.
A good 3PL company engaged in a single sourcing partnership, instead of trying to figure out how to leverage the best return from the busiest lanes, will be thinking about what are the overarching strategies and goals of the customer.
Essentially, the client’s problems are the 3PL’s to solve. Visibility into all the pieces of the network gives the 3PL the information necessary to make the best decision to meet the client’s needs.
From a 3PL’s perspective, we can tell you that along with partnership comes a different attitude. A 3PL might not have actual capital invested in the game but there’s certainly a sense of ownership and accomplishment. In a very important sense, that 3PL is able to leverage every dollar you spend with them to gain a better result all around.
When a 3PL is rate shopped and pressed to give their lowest price, if things go wrong or are less than satisfactory, it’s easier for them to walk away. Most freight problems are best solved in collaboration with the freight services provider.
2. Your Data is More Reliable and Available
One of the significant disadvantages in rate shopping over a single sourcing strategy is demonstrated in the case of data integrity – an aspect of supply chain management that is becoming more important every day.
The recent “WannaCry” ransomware scandal – where hackers took advantage of a vulnerability in Microsoft Windows software – revealed the troubling fact that many apparently well-run companies have fallen woefully behind in making sure their IT is updated. Microsoft issued an effective patch to solve the problem months ago but it became clear that companies handling data from multiple systems, some of them old and creaky, simply did not have the IT resources needed to keep that data safe.
Because all good 3PLs are in the business of data management these days, you can expect a higher level of data-management integrity from a single-source logistics partner. You can also expect data to be delivered in a single format that’s compatible with your own systems for easy access and analysis. Accurate, standardized data not only gives you visibility into where your freight is or how different lanes are performing but also allows for better forecasting.
Even with basic tracking, it’s a royal pain to get separate data feeds from a dozen different providers, let alone analyze and make sense of it. It will almost certainly put a strain on your precious IT resources. With single sourcing, you have one point of contact who’s going to help you understand what the next 12 or 18 months is going to look like and provide the data in a format that can be used for future decision making within the network.
3. You Lower Your Risk of Damage and Theft
single sourcing risk managementHow? Unfortunately, the incidence of theft in logistics and transportation is very high. If a 3PL is delivering transportation at rock bottom rates the likelihood of poor service can greatly increase.
They’re liable to take more risks with who they are hiring or they will cut corners on other factors that play into making sure your cargo is handled safely and with care.
They can get away with it, too, because if it doesn’t work out, there’s no dedication or partnership to jeopardize. They exit and nothing is lost.
On the other hand, in partnership mode, your single source provider is going to be deeply concerned with combining low cost with quality, safety, appropriate handling and service—not least because he’s going to have to look you in the eye at the next monthly meeting.
It’s all part of achieving the best mix of service and cost as your single source partner who actually understands the strategy and requirements for how you are using your full supply chain.
4. You’ll Be Ahead of the Curve When it Comes to Changes
Single source partners keep you better informed about best practices, industry trends, trouble spots and changes in regulations. When you work with a single-source partner they make the investment in becoming the subject matter expert for your business and keep you up to date on the things you need to know.
They collate and analyze information from other shippers that can benefit you. For example, ODW makes regular trips to Bentonville, Arkansas to talk to Walmart about their ever-evolving fulfillment needs—not for a specific client but to ensure we are always up to date on their compliance policies.
5. You’ll Benefit from Market Opportunities
At the end of the day your 3PL is best positioned to monitor and make the most of fluctuations in the freight market. They’re far more experienced at negotiating freight prices than you’ll ever be and they have the volume to leverage in order to negotiate better prices and terms.
The bottom line is that commitment means rate stability. With single sourcing, we have full visibility into all of what you’re doing, allowing us to play the market in certain lanes but keep a steady arrangement in high-traffic ones. On the other side of the coin, we may have concerns about market fluctuation and/or capacity crunches, in which case we can go out and negotiate one- or two-year contracts to reduce the risk of price fluctuations. We have all of it so we can play all of it – it’s a beautiful thing.
Securing quality service in freight is, at heart, a form of risk management. It’s important to always be balancing rates and quality and, sadly, rate shopping almost always comes at the cost of quality.
So, if it’s that obvious that single sourcing is the better option, why do people rate shop? Isn’t there an old adage about not putting all your eggs in one basket?
When we hear a customer making that argument we find that it just means we haven’t helped that customer understand the market, the importance of risk management, or how working with a 3PL they trust to leverage their business can yield best outcome long term.