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11/29/2010

Award by mouse click

In their search for the cheapest logistics service provider, ever more companies discover the awarding platforms. That's how costs are to be reduced and the purchasing process simplified.

By Christoph Hus

When the Garching-based construction machinery subsidiary of the Zeppelin Group wants to deliver, conventional trucks are often inadequate. Because Zeppelin distributes and leases construction machinery by the American manufacturer Caterpillar. Its excavators and wheel loaders are often so big that they can only be transported by special-purpose vehicles and on specifically selected routes to where they are to be used. Three years ago, there were still close to 2,000 carriers dealing with such transports in all of Germany. The staff at Zeppelin branch establishments and rental stations usually ordered transport service providers known to them. "This method made it very difficult to determine the most economical price", remembers Patrick Mertes, Logistics Manager at Zeppelin. "Moreover, the order award often took a lot of time for our staff."

That's a thing of the past since early 2008. Since then, the Garching-based company tenders all transport orders for which there are no fixed contractual agreements via the awarding platform Transporeon. That's about half the logistics services ordered by Zeppelin. The procedure is always the same. One of Zeppelin's staff first enters the most important facts for the order into the Transporeon system: The size of the construction machine to be transported, starting point and destination of the transport, as well as the desired date.

About 400 logistics service providers registered for it at Transporeon can then submit their bid. Generally, the one with the lowest price will be awarded the order. "With this system, we significantly reduced our logistics costs", says Mertes. "Additionally, we simplified the awarding process and reduced the number of service providers as well as the number of empty runs." This reduces administrative expenditures at corporate headquarters.

Sometimes spot market, sometimes standing order
Just like Zeppelin, many companies professionalized purchases of logistics services in recent years and are now using procurement platforms. They hope primarily that costs for logistics services will be reduced. At the same time, the company's procurement process is to be simplified. Advantages of the platforms are obvious: The ordering party no longer needs to ask several service providers by phone or e-mail. Instead, they just enter all the data into the system. At the end of the bidding process, they can see the lowest price at a glance and award the order by a mouse click. They will pay a fee for this service to the platform operator. On the platforms, customers cannot only tender individual transports like Zeppelin; experts call that business a spot market. They can also offer long-term contracts; for example, the entire transport business in Germany in one calendar year. During the economic crisis, the low price for diesel fuel and reduced demand resulted in lower transport prices.

"Many ordering parties used this chance and concluded long-term contracts with their transport service providers", reports Victor Meier, Managing Director of the awarding platform Cargoclix. "In turn, forwarders and carriers profited from the fixed utilization of their capacity during the months of the crisis." After the volume of tenders at Cargoclix went down somewhat at the end of last year, Meier meanwhile records an increase again – triggered by the economic recovery and the good business of many industrial and trading companies.

Different cost models
Very intensive users of the awarding platforms are companies from industrial sectors which transport large volumes of goods, but at the same time generate only low margins and therefore are particularly careful with their costs. "We can offer them access to a large number of service providers, and we thus provide optimum bases for decisions to be made in the procurement process", Meier promotes. According to his information, a total of 20,000 users are already registered at Cargoclix; 88 percent thereof are forwarders and carriers. However, those interested in an awarding platform should first get their in-house processes in shape, advises Oliver Kreienbrink of the purchasing consultancy Kerkhoff Consulting. "Because tendering via a platform will only be worth it in the end if one can precisely define, for example, which services are actually needed." In this case, customers could also profit from additional services by the awarding service providers, the consultant explains. Thus, based on the offers by different logistics companies, many platforms will help their users to play out various scenarios, including the resulting costs.

Despite the many good arguments in favor of awarding logistics services via an online marketplace, the introduction of such a system is not always that simple. Patrick Mertes from Zeppelin had also made that experience. "During the first few months, we had a lot of convincing to do among our staff", he reports. "In the beginning, many of them simply could not imagine that awarding via a marketplace would really work better than the old system." But such reservations meanwhile vanished – also because the staff at Zeppelin now has more time for other work.