Reducing supply chain transportation cost-related risks with advanced contract analytics
Passenger and freight transportation exists within a complex, dynamic environment. Changes in customer demands, pricing volatility, tariffs, competition between shippers, customer expectations, and—most recently—impacts of a global pandemic, pose daily challenges for transportation companies like railroad, trucking, shipping, and marine. The need is to cut costs and maximize profits, and plan for an uncertain future while growing the business.
Market volatility also affects contract clauses. Changes in fuel prices and varying shipment volumes make it harder for companies to enforce clauses and manage transportation costs. An unexpected market shift can make an agreed-upon rate obsolete 6 months after an RFP. And as there isn’t any integration in the contract management and the enterprise system, these changes aren’t effectively tracked and recorded. As a result, disruption can be viewed more as compliance issues due to weak contract management processes.
According to FreightWaves, contract rates have been underpriced for the market conditions for most of the past year, with compliance levels falling rapidly. This has led to surge pricing, making it tough for shippers to find “the sweet spot that balances price and service/compliance levels.” From the shipper’s perspective, balancing the risk of decreased compliance and service against price is a headache.
No matter whether you are a railroad establishing an agreement with a shipper, or a broker negotiating shipping rates, contracts are the lifeblood of the transportation industry, underpinning every relationship. This makes business analytics and contract management solutions mission-critical for developing insights needed to make the best business decisions around pricing, rates, and more, decisions that impact profit and reduce unnecessary costs through streamlined business functions.
As companies move to an advanced contract analytics state, they can reduce compliance risk, gain visibility into obligations or commitment that impact profits, and maximize commercial outcomes through better insights during contract negotiations. In this blog post, we explore the growing use of analytics in business decision-making in the transportation industry and their intersection with contract management solutions as a means of tackling market challenges and reducing transportation costs.
The current state of analytics in the transportation industry
In today’s changing trade environment, companies have a multitude of challenges to face in global supply chain management and operation. Various complexities in production, supply, customs, and documentation requirements have caused firms to become specialized in supply chain management. This management encompasses transportation costs, customer service, inventory management, and product fulfillment.
The greatest challenge for the industry is the integration of data points across all these intersecting operations to prevent the format of data silos and gain greater visibility into the supply chain. A smooth flow of data for efficient use in analytics is, then, key to establishing an advanced analytics state.
Efficiency is the word of the hour in the modern transportation industry, but in some ways, the industry is being held back by various challenges around data modernization and the use of analytics for better decision-making and trend analysis. Some of the major factors that are contributing to this lack of analytical capabilities include:
- Legacy assets are still in use
Even though the industry has made headways in digitalization, they are only halfway to the point of utilizing the true potential of their data. Companies are still adhering to traditional methods of data handling and manipulation, or are using decades-old tools to manage databases.
- The presence of fragmented data
Fragmentation of data across the supply chain is one of the biggest concerns for industry players. This quickly leads to limited visibility over different business processes and makes it difficult to unify the supply chain and streamline operations management. It’s almost impossible for collective data to be extracted from numerous sources and integrate into a centralized location for analytics purposes.
- Low-quality and inconsistent data in records
Different data handling methods or disparate data storage across departments or functions results in the inconsistency of data, making it very difficult to reconcile data and establish a single version of truth. Data quality is often not up-to-par, with databases unable to handle unstructured or semi-structured data that is being generated.
Taking a step back, it becomes clear that transportation companies need to establish a strong integration between their supply chain management and contract management software to ensure cross-departmental collaboration, data consistencies, and improved agility to react to unexpected changes. Market channels should be centralized to optimize decision-making and gain oversight into the market. Centralized supply chain models will then feed data into a business analytics tool, and use the insights to model sales trends. This is the only way to gain early insights on potential issues and maximize commercial outcomes.
Contract management in the transportation industry
The digital transformation of the transportation industry and the use of effective contract management systems make it easier to anticipate less-than-profitable conditions during negotiations and become more resilient in responding to market changes. To improve collaboration, gain a holistic view of contract data across the organization, and obtain a competitive advantage over competitors, transportation companies use contract management systems to meet all contract-related requirements and drive more value from contracts.
We talked a bit about analytics above and effective centralization of information. This analytics picture has a big play in the contracting space. Due to changing regulations, the existing contracts often become non-compliant. But if there isn’t a process in place to track these changes, changes to documents are not captured. A lack of integration between contract management systems and other business systems, clauses can’t be enforced and there are lapses in tracking different attributes.
A unified, analytics-driven contract management platform drives more resilient transportation management. With contract analytics, companies can maximize commercial outcomes through analytics-powered insights during negotiation—before a contract is even signed! With enhanced visibility comes reduced risk through tracking of obligations, commitments, and expiries (including in P3 scenarios). These contract management solutions can offer capabilities that encompass automation tools, risk mitigation, and supplier management.
Procurement and supply analytics in the transportation industry
How does contract analytics benefit procurement functions within the transportation industry? Advanced analytics empower you to analyze market situations and predict price surges based on which company might be losing revenue, or through unidentified leakages. This comes in handy during procurement or sourcing negotiations. When it comes to managing obligations, contract data can be analyzed to prompt alerts of upcoming contract expirations.
Artificial intelligence (this, companies can connect data points across departments to minimize risks and realize the full contract potential. Contract intelligence allows you to extract the maximum value of contracts from beginning to end and speeds up the contract setup process, enables consistent negotiation on better terms, and helps you manage obligations effectively.
It’s due to the cost-effective benefits of contract intelligence that companies should start adopting it more. These benefits are driven by several core capabilities:
- It allows for the use of existing data for better sourcing capabilities, such as providing you with the best prices and negotiable deals or managing product warranties and guarantees. In this way, you can save costs on supplier deals and contracts.
- It gives you a competitive advantage with a simplified supplier onboarding process, and a centralized price master so that you can ease the creation of supplier contracts and establish transparent relationships with them. This helps you manage obligations and assess all contractual risks.
- Deep integration of the contract management system with other business software such as ERP, CRM, and POS allows you to extract valuable data easily and automate market changes into the system. This integration capability gives you a complete view of contractual data so that you can pinpoint the areas of revenue loss.
For the transportation industry, contracts play a huge role on both the buying and selling sides. Agreements are limited by exceptionally complex guidelines changing across countries. A lot of capital is secured within high-valued agreements and consequently bears an immediate impact on the benefit and income of any transportation business. Intelligent contract management platforms empower transportation companies to perform comprehensive impact and performance analysis while negotiating contract terms, effectively minimizing contract risks, and creating more opportunities for profit. While you may not have a crystal ball to predict the future, at least you’ll be able to agilely pivot when the unexpected occurs.