In the second part of our discussion on Logistics Procurement, we surveyed the pitfalls in formulating RFPs, and the gains offered by working with multiple providers. The third and final part looks at how organisational and operational obstacles to good procurement can be solved with an implementation of AI technology.
A common theme in logistics procurement is the conflict that arises between pure cost reduction as a goal, and operational and service goals.
The inherent resistance to change can make it difficult for procurement teams to justify a move away from existing contracts. Without a watertight case for change and a significant enough cost benefit, the upheaval anticipated by supply chain personnel can be a roadblock.
Part of the solution to this problem is access to very detailed and accurate data. This data can be fed into the reports and simulations procurement staff can generate to demonstrate the case for change. It’s hard to argue against benefits that are so persuasively validated by real data.
But operational objections are also real. If supply chain staff know how to operate a single supplier workflow effectively but baulk at the idea of dealing with four or five suppliers, their concerns have to be addressed.
Procurement teams that have identified big savings and service benefits from the adoption of a multi-supplier model need to show supply chain staff HOW the model can be operated without stress, extra workload or increased error. This is where some of the other modules in the 7bridges platform help.
For supply chain staff using the 7bridges logistics platform, it’s just as easy to operate a sole-provider contract, as it is to operate using many logistics service providers.
It’s easier because for every shipment, the correct choice of provider, service and packaging is made algorithmically, and the optimal shipment consolidations are automatically suggested to loading bay staff. Company rules on despatch processes are implemented by the software, meaning that losses through incorrect choices are eliminated. The 7bridges technology ensures that savings negotiated by procurement teams aren’t diluted by poor process control when the contract comes into force.
Negotiating a good deal might be considered the primary task for the procurement team, but making sure it continues to be a good deal is the aim for the business. Procurement industry research identifies ‘leakage’ or losses during the term of a contract as a significant problem. If the promise of a great deal turns out to be only partially fulfilled in practice, that might not be seen as the fault of the procurement team – but it certainly means that the value of the procurement process has been diluted.
At 7bridges, our analysis indicates that around 20% of logistics invoices contain some form of error, overcharge or SLA infringement. Most of this goes unnoticed and uncorrected because of the disconnect between accounts payable staff and logistics/supply chain management. Most organisations simply don’t have the resources or systems in place to cross-check every logistics invoice against performance and compliance data. So however good the negotiated is, its terms may not be met in practice.
To eliminate this leakage, the 7bridges Audit module automatically validates every item on a supplier invoice by checking it against the performance and compliance data gathered elsewhere in the platform. When discrepancies are found, accounts payable staff are notified, and an automated refund claim is launched. Audit also has the benefit of providing detailed general ledger coding for every item, so that financial analysis can allocate costs more accurately.
This linkage between performance and payment helps ensure that the gains negotiated in a procurement deal do actually materialise in practice. That’s good for the business overall, but there’s a specific advantage for the procurement process too.
Looking forward to the next round of negotiations, a procurement team is in a strong position when it can list every instance in which a logistics provider has overcharged or failed to meet agreed service levels. Audit provides this, and it’s a potent weapon to bring to bear when pushing for greater value in a contract renewal.
Taken together, the roadblocks identified in procurement industry research combined with the evidence of many high-profile logistics procurement, all point to a simple fact: it’s not easy to get logistics procurement right.
The great complexity of supply chains, the enormous amount of data to be evaluated, the difficulty of obtaining and making sense of that data – these special factors mean that extra assistance from a new toolkit is needed if a procurement team wants to deliver full value from its work.
Want to learn more? We’re hosting a webinar on how to excel in logistics procurement with AI on October 14th 2021. Register now, and you’ll have the opportunity to learn from experts in logistics, AI and data science.