Ensure carriers meet performance standards to keep relationships on track
Compliance is one of the foundation blocks of an efficient freight management program. In addition to ensuring that carriers can meet your performance standards before entering into commercial relationships with them, a robust compliance process helps you keep such relationships on track.
Approaches to carrier compliance vary from shipper to shipper, but certain elements are critical to success.
Three Focal Points
Carrier compliance is essential throughout the shipping process. Therefore, conducting due diligence before hiring a carrier and developing well-defined performance criteria before the process is implemented are essential.
Performance criteria are only as good as the data that underpins them. A vital first step, therefore, is to analyze your existing inbound and/or outbound transportation needs. Armed with this analysis, you can create a list of specifications that becomes the yardstick by which you evaluate prospective service providers.
“We often help shippers to identify the metrics that are relevant for their freight network,” says Andy Moses, senior vice president of sales and solutions, Penske Logistics.
The list of metrics might be long, and its items vary according to the nature of the business and its supporting freight network. However, three key areas warrant special attention.
1. Integrity and insurance
Carriers must transport your goods safely and reliably. Transportation companies represent your brand in the marketplace. Also, litigation can be extremely costly and complicated, so carriers must hold insurance that is commensurate with the risks associated with your business. “Any supply chain team needs to ensure that the carriers they are tendering loads to have the proper operating authority and insurance credentials,” Moses says.
The discipline of verifying carriers’ credentials should not cease when you have hired a provider that meets these requirements. Says Moses, “We continually monitor the carrier base, and when we learn that a provider is out of tolerance, our system does not allow loads to be tendered to that company.”
2. Performance metrics
To consistently deliver shipments to the right place, at the right time, in the right quantity, and damage-free, you must ascertain from the outset that a carrier’s performance complies with the service metrics that are intrinsic to your business model.
Here are some questions that require satisfactory answers:
- On-time delivery. Does the carrier’s track record show that it provides precise and predictable delivery times and consistently meets customer deadlines?
- Damage avoidance. Is the carrier experienced in moving the types of goods you ship? Are its drivers trained to minimize cargo damage/loss rates?
- Customer interaction. Are you confident that a carrier’s drivers will communicate your company’s values when interacting with your customers and suppliers?
- Service flexibility. How flexible is the carrier’s operation? For example, can it deliver directly to stores if required or make deliveries during off-hours, so your locations are stocked as needed?
- Capacity availability. Is the carrier able to provide drivers and trucks at the contracted price even in tight markets? Does it have a track record of regularly rejecting loads?
- Communications. Can the carrier connect with your communications systems and provide status updates as needed?
3. Financial settlements
The carrier must be able to integrate with your financial system. As Moses points out, “having an airtight, back end financial process is very important” in an industry where transactions routinely involve payments of millions of dollars. “That means, for example, maintaining tight end-of-period accounting cutoffs so you know what went wrong if, say, shipments don’t match the time frames in which they occurred,” he adds.
Another imperative is that relevant financial information is communicated to all appropriate parties; a requirement that has gained in importance with the rise of cross-functional teams that often include the finance department. Again, the challenge is ensuring that carriers can supply the information you need in a format that is compatible with internal and external communications systems.
A third-party provider such as Penske Logistics can function as an integrator. “Our probing process is geared to ensuring that all relevant parties are in the loop. This extends to the metrics used because different constituents in the supply chain rely on different sets of metrics,” explains Moses.
A volatile trucking market and more demanding customers elevate the importance of carrier compliance. Moreover, the compliance process must be ongoing because shipper and carrier networks are in a constant state of flux, and misalignments are an ever-present threat to network efficiency.