Moore on Pricing: Contracting for a Big Data windfall

The data generated when shippers buy and sell goods typically includes dozens of key fields including dates, volumes, transit times, prices, accessorial costs, locations, and most recently dimensions. 

A large part of the payback for shippers in pushing their service providers and their own organization into collecting and managing transactional data comes when it’s time to re-engineer the supply chain network. Re-engineering efforts need information, and experienced shippers know how difficult it is to get clean, usable, historic data to use in modeling and re-designing the supply chain.

It’s the inbound and outbound transaction history derived from actual shipments that will form the backbone for a thorough understanding of a market and enable “what-if” scenarios in procurement and distribution. 

Shipper executives are often amazed that their customer demand data, actual costs to serve customers, and inventory handling costs are casually thrown away when transactions are complete because their ERP system doesn’t need it for the financial accounting that it is purposed for. Their ERP does not need this “extra” information.

Even “best of breed” logistics systems are geared to complete the transaction and move on. IT departments often don’t understand the logistics-related data-keeping requirement and want to minimize storage space utilization.

As a practice leader in two of the big logistics consultancies, I had the unpleasant duty of explaining to many shipper executives that the reason for the high cost of their re-engineering project was due to the need to painstakingly build a database of their demand and purchasing flows so that we could model the business for them. The information that was needed had been lost in the efficiency of aggregation of information for their financial and marketing reports.

Often, more than 50 percent of the cost of a distribution network modeling initiative is in building a reliable history of their demand flow and costs in order to validate that the model baseline of the business is correct. We would call on carriers and 3PLs to create reports from their records for the project only to find that their systems were not much better than the shippers at storing and managing transactional details. 

This can be avoided by arranging ahead of time for acquiring and managing supply chain data at the time of the transactions. The shipper and carrier must agree to jointly collect the needed information. Keep in mind, this is not a part of traditional standard contracts for carriage, brokerage agreements, or spot quote letters.

It’s therefore critical that a shipper insists that all contracts have the shipper’s rights to data, as well as the collection and carrier storage and retrieval services regarding data, spelled out up front. This should be a part of the rates, but you will not find this requirement in standard Bill of Lading language or the National Motor Freight Classification rules.

This simply means that we need to take a fresh look at transportation contracts and re-build from the ground up.

The focus of this column is data use in periodic network optimization projects; however, it’s important to understand that this rich detailed history can also be used more frequently by shippers in spotting pricing trends, violation of routing guidance, transit time changes, and accessorial cost variations.

The bottom line is that collection, management, and analysis of transactional information is a proven way to affect the cost and service levels in logistics. Investing in better contracts, processes, and systems to leverage information will yield some of the highest returns on investment in optimizing your network.