Contract Management Process Guide: CPG Supply Chains and Manufacturing Rates
Choosing the right carrier for your shipments can be a complex process for consumer packaged goods (CPG) and manufacturing companies, given some of the shipping requirements for products such as special packaging or large shipping crates for machinery or equipment. You want a carrier that can meet your capacity requirements, product shipping conditions, and your budget. Learn everything you need to know about proper contract lifecycle management.
Risk Management in the Contracting Process
Recent capacity shortages have added to contract process complexity, putting carriers in the driver’s seat and shifting away from the fruitful partnership between shippers and carriers. When you do find the right carrier, it’s important to get the best contract and rates possible. Proper carrier contract management is a key component of Transportation Spend Management, which mitigates risk.
We at Trax guide many organizations through the main challenges of carrier contract management and provide global suppliers with best practices that ensure competitive rates with the right carriers.
Carrier Management Challenges in Manufacturing and CPG
With decades of experience, we’ve seen many companies face a variety of challenges with carrier contract management. Here are the most common ones companies face in manufacturing and CPG industries.
Accessorials
These negatively impact your bottom line. While surcharges are known fees leading up to any shipment and you can incorporate them into your transportation budget, accessorials are unknown fees that only appear after the fact.
Carrier margins
Carrier margins are calculated by add-ons, not just freight rate. Finding these margins, much less ones that meet your budget, can be difficult without comprehensive contract data management and cost alignment.
Right carrier
Finding carriers that can meet your shipping requirements, such as delivery times and capacity, can be an expensive trial-by-fire that can lead to damaged shipments, late deliveries, unsatisfied customers, and more.
Demand
When carrier demand is high, you have to pay more to meet service-level expectations or sacrifice speed and reliability for cost efficiency, neither of which lead to long-term success. This may lead to using the spot market to move products which have seen significant increases from pre-COVID levels.
Best Practices for Carrier Contract Management
At Trax, we understand the constant challenges of contract management within CPG and manufacturing, which is why we’ve perfected our Carrier Management Services to help you overcome those obstacles and enjoy the fruit of your labor.
Here are ways to ensure your carrier contract management process is optimized and streamlined.
1. Ensure accurate data
By ensuring that you’re collecting, analyzing, and using contract data to evaluate carrier performance, you can identify the best carriers for the job when it’s time for carrier contract renewals. Trax makes this possible with customized carrier scorecards, Trax’s Performance Manager, and our Carrier Management Services.
Trax’s solutions not only deliver a steady stream of reliable and high-quality data, but they help centralize the data coming in from various areas, such as freight audits and Match Manager, for user-friendly analytics reports that allow you to make impactful decisions.
2. Make Timely Payments
In times of short shipping capacity or disruption, such as the COVID pandemic, carriers have more leverage and can cherry-pick which shippers to work with. By maintaining a track record of timely carrier payments, you'll have an upper hand. Carriers value on-time payments as a top priority, and companies that pay on time often are rewarded with better contract deals.
Through Trax's freight audit services, all your payments are made on time and without error, avoiding costly mistakes and elevating your relationship with your carriers. Trax Pays is a payment automation service that takes this matter up a notch—you give Trax funds only 52 times a year to pay all of your carriers on your behalf, making your freight audit much easier and more accurate. Trax Pays also gives you the clarity and visibility you need to better plan and forecast with sales teams, as well as record contract management adjustments.
3. Boost Risk Mitigation
Mitigating shipping risks, such as delays, damaged shipments, and decreased customer satisfaction is vital to maintaining your brand and retaining market share. The right carriers should decrease these risks.
With fewer damage claims, more satisfied customers, and so on, the right carriers ultimately lead to lower costs in the long run. Having carrier and contract performance data isn’t enough if you don’t leverage it.
Trax's Transportation Spend Management Maturity Model offers you a roadmap to optimizing your supply chain's financial and operational processes. Maturing through the model gives you unhindered visibility and unmatched foresight to mitigate risk, evaluate carriers with both historical and real-time data, and create an agile logistical network to handle any risks or unforeseen obstacles in the future.
4. Leverage Accessorial Benchmarking
Proficiently managing accessorials requires in-depth knowledge and complete visibility over your carrier contract management and transportation spend. Accessorials can arise from mistakes in a bill of lading that can lead to delays and unnecessary costs, or even weak planning. These result in lost shipping windows, which then require finding other shipment routes or redelivery. Accessorials can even stem from shipments requiring specialized equipment to handle them, if not well-planned with the carrier.
Benchmarking freight accessorials is vital in maintaining your profit margin. Comparing accessorial charges amongst your current carriers, as well as against the market is possible with tools like Trax’s Rate Manager.
Both shippers and carriers benchmark accessorials—shippers use them to induce change in carrier behavior and performance, and carriers use them to ensure adequate compensation for any extra services provided. For example, detention and stop-off charges both affect a shipper's cost. Using data to benchmark these accessorials, you can better plan your shipping costs and spot any wild carrier variations to ensure you’re paying a fair market price.
Trax’s Transportation Spend Management tools and services, such as our Freight Audit Services, along with our expertise in carrier management, helps you identify the most realistic accessorials in real-time, based on your products and delivery requirements. We help you navigate which carriers are billing accessorials, sometimes even identify the situation or event that created the charges, and dispute them if they don’t align with your contract terms.
5. Build a Symbiotic Relationship
Managing multiple carrier relationships to ensure your needs are met is a complicated task. The relationships with your carriers can help you both grow—constant feedback through data can help your carriers enhance operations while increasing their profit, and carriers give you opportunities and solutions when the global shipping stage is strained and expensive.
For example, a manufacturer has a product shipment delayed because all ports are full of empty containers or ships that need to be moved in order to accept new ones. No one is willing to whisk away the lodged containers, so the product can’t be delivered to the plant to complete their orders due to lack of material, which results in lost sales, time, and money.
Or consider a similar problem at a CPG company with a complicated fabrication process that requires different shipments to various locations before the final product is finished. A delay in any of the shipments can lead to the entire operation and many production lines standing idle until it’s resolved.
With the right carrier relationship, which is backed by Transportation Spend Management database strategy, Trax can help you navigate around those challenges and identify the carriers most adept at avoiding them.
6. Identify the Right Carrier
Partnering with the right carrier is key to building a strong relationship, discovering savings, mitigating risk, and obtaining top-notch carrier performance. An RFP tailored to meet your needs helps weed out carriers that aren’t a good fit.
Constant monitoring and evaluation of carrier performance are important after signing a contract, as your needs and carrier performance can shift. Collecting data through carrier scorecard KPIs provides valuable feedback for carrier performance enhancement. It’s not just about the upfront cost. A less expensive carrier can quickly outweigh transportation savings when they fail to meet compliance—with late or damaged shipments—and cost you lost sales and unsatisfied customers.
Trax's RFx Manager helps you create customized, comprehensive, and relevant RFPs that match your needs and highlight specific services to carriers, ensuring you get the best performance for the best value. Our dedicated Carrier Management Services works directly with your carriers to rectify the root cause of issues so they don’t re-occur. This rewards you with consistently high ROI to boost your bottom line and allow you to reassign your resources to more strategically focused efforts.
7. Forecast, Forecast, Forecast
Accurate forecasting helps you plan for growing trends, such as increasing fuel prices or shifting consumer behavior to e-commerce. Said simply: know your plans, and budget accordingly. To successfully forecast transportation spend, you need control over your cost centers and higher, real-time visibility into your data. This delivers a means to get ahead of the competition by locking in contracts at more favorable rates.
Trax's Rate Manager plays a pivotal part in this process, giving you enhanced visibility into rates and early visibility for accrual management, cost allocation, and improved data visibility. By regularly reviewing your data, you can implement quick course corrections for carrier rates, customer behavior, carrier capacity, and more, creating better forecasts for the months ahead so you can be prepared to handle the unexpected and have a leg up on the competition.
8. Use a Contract Management Software
Trax technologies streamline all best practices to help you fulfill customer expectations and maintain essential automated workflows. Your bottom line relies on intricate contract creation and contract lifecycle management from start to finish. Our contract management software ensures this.
Powerful Carrier Contract Management
Carrier contract management in your company is riddled with challenges and has the power to make or break your bottom line. Following best practices and tools that deliver real-time visibility into current and past carrier rates, RFP enablement, a strong grasp on your budget, and robust forecasting—paired with optimized Transportation Spend Management—helps to save time and solve the root of problems so you can mitigate risks and grow your market share.
As a global leader in Transportation Spend Management, Trax helps you master carrier contract management and become a leader in your industry. Contact Trax today to optimize your contract management system from end-to-end.