A Strategic Sourcing Solution To Win In Unstable Markets

August 12, 2022

author:
Kerrie Kennedy

Join us for our webinar 'Dynamic market sourcing: A win-win strategy for sourcing leaders & suppliers' on August 31 - register here

If you've been working in the supply chain industry for a long time, over the last two to three years you've probably become familiar with levels of volatility higher than you've ever experienced before.

Here's a brief recap of the disruption in the market today:

The pandemic and dramatic shifts in buying have caused disruptions in the supply chain. Some say it broke down, and others say it was stretched to a new limit. In either case, the containers moving from the APAC region to Europe / US became in high demand, which caused huge price hikes to move a container by ocean or air.

When ocean rates that were once $1,500 per box to ship from Asia to the US initially rose to $4000, nobody imagined prices could go much higher. That is, until they reached $7000 and even soared to $15,000 per box. Similarly, truckload and air freight rates have experienced massive hikes in price. 

Adding to the woes of supply chain professionals, there's been a cascade of "once in a lifetime" black swan events happening almost every month.

These and other issues created a marketplace that was extremely volatile and challenging for buyers to manage – and even more so if they were operating under a traditional sourcing mode that meant running RFPs only once every three years. In some cases, more advanced teams had the capacity to run RFPs every year; any more than that was a sign that your team was doing a superb job.

However, over the past 12 months or so, we’ve seen routing guides become worthless a month after being established, negotiated rates not getting honored, and service levels needing vast improvements. But in many cases, even if carriers wanted to honor agreed prices, they don’t have the capacity to physically move goods, it’s simply not there.

The Problem With Traditional Cycle Sourcing

As any sourcing professional knows, running a large full-scale annual RFP can take months of time – from collecting the data, cleansing the data, doing a bid, getting all the results, and implementing it. More and more teams are struggling because they've spent so much time developing their RFP, only to have everything fall apart a month or two months later.

Then, there’s the long existing sourcing challenge of carriers asking for rate increases off-cycle. Sometimes it’s justified and sometimes it's not, but ultimately it's difficult for buyers to deal with: it damages the relationship, and buyers have to justify the price increase to leadership or deal with a different carrier and take service risks. 

Whole teams have been spending all their time doing tactical firefighting, essentially chasing dimes for diesel and oftentimes paying whatever carriers ask as long as they can find the services they need to move their goods. All this combined means longer sourcing cycles are increasingly inefficient.

Up Your Sourcing Frequency With Dynamic Sourcing

If the market truly is going up so fast and the carriers are not honoring your rates, they're not giving you the tender acceptance that you require. Of course, there's no magic bullet to remove all of the volatility — we need to figure out how to manage it. 

The solution (and historical trend) is to source tender rates more often; how often depends on how costly it is for you to source. Dynamic Market Sourcing is a new term Keelvar has coined for the strategy sourcing leaders are using to actively seek information in fast changing markets. Instead of running bid events once per year, there might be parts of that bid or new lines that come up that you need to take out on a monthly basis:

‍Leveraging Keelvar's user-friendly optimization and automation technology, a dynamic market sourcing strategy brings a lot of data to the equation so you can make more empowered decisions. It gives a better way for everybody involved to funnel discussions through potentially more frequent updates, and validate that any prices being asked for are really in line with the market.

As a result, it puts you more in the driver's seat versus having to constantly field rate change requests from carriers without having a good way to manage them. And that reduces the tactical firefighting that you’ve got to do in the meantime.

Meeting Market Downswing

Previously, as a buyer, you didn't have an effective mechanism to capture the downswing in the market. But with markets coming down over the last six months, dynamic market sourcing has also given buyers an ace up their sleeve.

Prior to this, if you ran an annual RFP and you wanted to come back six months later because rates went down, you risked getting a bad name in the industry for trying to take advantage of market conditions.

But by contracting rates on a one-month, three-month, or six-month basis, as rates start to come down, you have an effective mechanism to capture those rate decreases, and again, a quick and efficient manner to do so without spending four months building an RFP.

Summary

By taking on a more frequent sourcing cadence, you’re giving yourself the ability to very quickly run sourcing events that enable your team to focus on more strategic tasks, reduce the tactical burden, and be able to execute events more effectively.

Dynamic Market Sourcing is the best way to increase operational efficiency and reduce tactical firefighting in today's market. And in Keelvar, all you have to do is add a round or copy the event—the trick is to use technology such as Keelvar's to do all that work for you.

Keelvar customers following a dynamic market sourcing strategy are outperforming the competition to get better rates and capacity  – read more in our latest eBook.

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