Strategic Freight Management from a Shippers / LSPs Perspective - Strategic Freight Procurement (SFP)

By Bastian Willmann-05/11/2016

Transportation cost control has been under intense pressure in recent years. Upward pricing drivers have included lengthening supply chains due to globalization, customers demanding faster and more frequent deliveries, carrier capacity challenges, stricter accessorial enforcement by carriers, and fuel surcharge gyrations.

Why Strategic Freight Procurement is a New Focus?

Rising freight costs are clearly the top pressure driving companies’ renewed focus on transportation procurement and payment. Companies realize they need to institute better spending control to ensure their purchasing volume leverage is being maximized and that shipments consistently follow corporate rules on using low-cost/best value carriers or service options.

However, cost is not the only factor on procurement and logistics professionals’ minds. Growing recognition of the critical role transportation flexibility and reliability play in overall supply chain performance is causing companies to re-examine their spend management processes. Increasing supply chain complexity caused by more manufacturing outsourcing and globalization is also making many companies’ traditional transportation procurement practices outdated.

The Challenges faced by the Shipper/LSP traditional process:

The Traditional process is manual and mainly done using Excel. SAP Strategic Freight helps to reduce high volume data and optimizing the procurement process.

What is SAP TM Strategic Freight Procurement?

SAP software for freight procurement helps you set expectations for upcoming transportation expenditures according to individual business units which varies depending on the shipping locations and trade lanes.

Also because your relationships with partners such as carriers change as your supply chain evolves, you may want to renegotiate existing contracts to include new business while changing the way you allocate shipment volumes among your LSPs/ carriers.

SAP software (from SAP TM 9.1) supports your entire strategic freight procurement operations by:

* Simplify contract negotiation processes.
* Preparing bids, proposals, and responses, and award and manage contracts/ long term Agreements.
* Efficiently managing contract negotiations by evaluating freight procurement expenditures – for example, annually or semi-annually.
* Can be employed with the strategic freight management function by itself or in conjunction with integrated logistics processes.
* SFP is a cycle of mutually work between shipper/ LSP and carrier.

 We from NOVIGO are getting more and more queries for SFP and we have already started to prepare POCs for prospect customers.

 The Process of SFP:



1.)    SAP BW: Using historical Data and do Analysis to get insights about the Order history, Capacities, costs and more. Based on the data from the previous years the shippers can do their forecast for the transportation requirements for the current year.

Strategic Freight Procurement Analysis, where the history of the transportation, cost and forecast of other logistic elemets is analysed and later the sales forecast is transformed in to transportation requirements.


2.)    RFQ Master Prepare: In the FA RFQ Master you detail your transportation requirements. The FA RFQ Master can be created from scratch, template, existing expiring agreement or hitorical data using worklist. For each Carrier you want to send out your requirements, the system will create an Individual RFQ. 


 Figure 1: FA RFQ Master General Data Tab

Carrier Communication: A convinient solution to communicate with your carriers is to use the SAP Collaboration Portal. Your carriers have access to the portal and response to their Individual RFQ by entering their offered capacities and rates. They also are able to report events via the portal.


3.)    Compare Responses in the comparison Cockpit: You can compare the carriers´ responses for each/across line item. The carriers answer to their individual RFQ with their rates and their offered capacities. Therefore you use the comparison cockpit. Carriers are ranked based on many constraints and which helps user to select the best.


 Figure 2: Comparison Cockpit


4.)    Simulate Estimated Spend: This is an automated version of comparing the responses, where you will be providing  few constraints based on which the optimizer is run. The optimizer takes all the constraints and gives the optmial solution for your transportation requirements.


 Figure 3: Estimated Spend and Target Share based on Strategies


5.)    Award Summary: Here, you are going to view the most preferred strategy according to your transportation requirements. You are able to get a graphical overview of the award summary which helps to create Management reports easily.


Figure 4: Estimated Spend in Award Summary Tab: Total per Trade Lane in comparison to Budget and per Carrier per Item


6.)    Agreement Creation: Accept your preferred Strategy. Now the Freight Agreement can be created by one click.

Figure 5: Agreement Creation


If you are not convinced with the first round of negotiation, you can always go from next round of negotiations with the carriers to find the most optimal solution for your transports.