Routing guides present a significant operational challenge for dropship vendors who manage dozens if not hundreds of unique routing requirements across their retail customers. It’s time for the static routing guide to die, as they are neither adhered to nor as optimized as their authors believe. In fact, the freight routing guide is obsolete.
The routing guides published to govern freight carrier selection have been in place for decades and are still widely used by many retailers today. The form of that guide has remained largely unchanged over this period – it is a static spreadsheet or database of state or lane combinations containing instructions for carrier selection that is published online or sent to dropship vendors.
From there, when a purchase order is sent from retailer to vendor, the vendor consults the retailer’s routing guide to determine which carrier is approved for that shipment. Penalties and/or chargebacks are levied for vendor noncompliance which in turn triggers an expensive audit process for the retailer.
Increasing Retailer and Vendor Ecosystem Complexity
The rise of eCommerce (and the need to compete retail giants such as Amazon and Walmart) has resulted in a proliferation of SKU counts for retailers, which in turn has resulted in supply chain complexity, including burgeoning dropship networks. Many of the leading retailers in the US have multiple thousands of vendors, many of which are domestic and require freight coordination.
“For our suppliers to have to ask what the deal is — ‘Hey, every time you go to send a shipment, can you get quotes from five different freight companies and ship it with whoever’s the best match for this particular shipment?’ — that’s a lot of work.” -Corey Tisdale, BBQ Guys
Combine this complexity with carrier innovations around minimum charges, discounts, weight breaks, dimensional pricing — and most importantly — real time spot rate pricing, and it’s easy to understand how “paper” or static spreadsheets can quickly become obsolete and difficult to enforce.
Static Routing Guides Can’t Adapt to Dynamic Transportation Decisions
Retailers utilizing conventional transportation routing guides continue to fall behind as growing carriers networks with diverse capability sets and pricing models combined with the rise in dropship vendor ecosystems.
There are three important observations from our analysis of the 10.7+ Million LTL shipments that have run through our platform. Static routing guides fail due to:
1) Difficulty enforcing vendor compliance to the routing guide,
2) Inability to optimize carrier selection at the shipment level and in real time, and
3) Incapability to account for considerations that go beyond selecting low-cost carriers.
Routing guide compliance by vendors is surprisingly low, even for large retailers
After analyzing millions of shipments and comparing published routing guides to the carriers that were actually chosen for each shipment, we measured a yielded average compliance of 52%, with a small variance in this percentage across retailers. We also observed that vendors are often either highly noncompliant or highly compliant, with noncompliant vendors often defaulting to their preferred carrier for almost every shipment, despite the fact that the retailer may have 5-15 negotiated carrier relationships and a routing guide that reflects required usage across them.
In particular, we observed the propensity of noncompliant vendors who default to national carriers (versus regional carriers) if they are listed as one of the retailer’s preferred carriers, regardless of which carrier the routing guide calls for on a particular shipment. This is often caused by a number of factors including brand strength, familiarity from parcel shipping, website features, better tracking and/or ease of use from the vendor’s point of view.
Routing guides do a poor job of optimizing low cost carriers at the shipment level
The routing guide is suboptimal based on the actual shipment characteristics (i.e. minimum charge vs. discount percentage, weight break, mode) that go into it. Even if there were 100% compliance to the routing guide by vendors, the result would be higher freight costs to the retailer than if carrier selection was optimized for lowest cost for each shipment among the retailer’s current carrier base.
There can be reasons why the low cost carrier might not always be chosen for a particular shipment (which is described below). In cases where this is known, we eliminated the bias from the data. In general, as it relates to routing guide objectives, the primary driver is cost reduction. Our analysis consistently shows at least a 10-20% freight cost reduction opportunity, had the low cost carrier been chosen for each individual shipment.
Static routing guides are incapable of accounting for considerations that go beyond selecting low-cost carriers
Modern retail carrier decisioning needs to be based on many factors – cost, transit time, carrier performance, claims ratios in order to optimize for both the business and the delivery experience. In a particular case in our analysis, 72% of the shipments were not only not optimized for cost, 67% of them also had opportunities for equal or lower transit time. In other words, there was an opportunity to reduce both cost and transit time, had the correct choice of carrier been made.
Additionally, these decisions need to be made in real-time by shipment characteristics, and even by the customer. Imagine trying to weight carrier selection for a particular high-value customer for faster delivery instead of by cost with a routing guide. Even more, imagine doing so in real-time and executing the shipment automatically with no human choice or intervention. In this case, spending 5% more on transportation for a high-value customer is certainly worth it if the reduced transit or increased reliability resulted in higher customer satisfaction and customer retention.
Moving to a Dynamic, Automated Process for Carrier Selection and Shipment Execution
It’s clear that to effectively manage the complexity of multiple carrier relationships, growing vendor networks, and current and reliable pricing from carriers that shipment level optimization must occur. This requires a platform that connects the retailers, their carriers and vendors in real-time — companies like Build.com and BBQGuys use a platform to connect hundreds of suppliers in one place. Each shipment must be decisioned based on its unique characteristics, and needs done so automatically without the ability to be overruled by vendor preference, and without the burden of administration.
Corey Tisdale from BBQ Guys sums up the problem of scale without using streamlined fulfillment: “A lot of our stuff is big and goes freight, and for our suppliers to have to ask what the deal is — ‘Hey, every time you go to send a shipment, can you get quotes from five different freight companies and ship it with whoever’s the best match for this particular shipment?’ — that’s a lot of work.”
True carrier optimization is not just about low cost, it involves a real-time calculation based on shipment cost, transit time, carrier performance, claims ratio, customer experience impact and more. The shipment must be initiated automatically (including pick up request, BOL generation, label production) through the platform where all the data is captured digitally and centralized for visibility and analytics. That connective tissue that makes this possible being API integrations as a replacement to the former EDI standard.
The Next Frontier: Predictive Data Analytics
Once the initiation process for the retailer’s transportation becomes fully automated and digitally executed, the data captured enables advanced analytics and insight. When algorithmic carrier decisioning is paired with intelligent and predictive delivery milestones for shipment tracking and exception management retailers see increased revenue, reduced customer churn, and reduced freight and inventory costs.