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Reducing uncertainty in freight transportation procurement

Author

Listed:
  • Caplice, Chris

    (DAT Freight and Analytics, Massachusetts Institute of Technology, 1 Amherst Bldg E40-255, USA)

Abstract

Securing sufficient truckload transportation capacity is a challenge for most shippers. The dominant design currently used across North America is to run an annual reverse auction collecting rates from carriers on each of their freight lanes (origin-destination pairings) and then feeding these rates into the shipper’s transportation management system (TMS), which then uses a routing guide to determine which carrier to tender a load to when a particular shipment materialises. Unfortunately, the routing guide frequently fails. This results in the shipper having to use backup carriers or the spot market, thereby incurring much higher rates. This paper explains why the current dominant design arose in the first place and why it is no longer sufficient. Four promising practices that can improve the transportation procurement process for shippers, carriers and brokers are presented and discussed: Data-driven analysis, transportation portfolio management, dynamic contracting and continuous procurement. These practices are meant to complement the current procurement methods in order to reduce the risk and level of uncertainty for all parties by making the procurement process more dynamic and responsive to the market.

Suggested Citation

  • Caplice, Chris, 2021. "Reducing uncertainty in freight transportation procurement," Journal of Supply Chain Management, Logistics and Procurement, Henry Stewart Publications, vol. 4(2), pages 137-155, December.
    • Handle: RePEc:aza:jscm00:y:2021:v:4:i:2:p:137-155
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    Citations

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    Cited by:

    1. Phares, Jonathan & Miller, Jason W. & Burks, Stephen V., 2023. "State-Level Trucking Employment and the COVID-19 Pandemic in the U.S: Understanding Heterogenous Declines and Rebounds," IZA Discussion Papers 16265, Institute of Labor Economics (IZA).
    2. Stephen V. Burks & Arne Kildegaard & Jason W. Miller & Kristen Monaco, 2023. "When is High Turnover Cheaper? A Simple Model of Cost Tradeoffs in a Long-Distance Truckload Motor Carrier, With Empirical Evidence and Policy Implications," Discussion Papers 2023-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    3. Miller, Jason W. & Phares, Jonathan & Burks, Stephen V., 2023. "Job Creation and Job Destruction Dynamics in the U.S. Truck Transportation Industry, 1995-2019," IZA Discussion Papers 16184, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    truckload transportation; procurement; mini-bids; transportation portfolio management; contracting;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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