Data-Driven Decision Making: Autonomous Procurement

How can companies unlock new value in transportation management? By becoming more data driven in their decision making.

That is the focus of a multi-part video seminar series we are producing in partnership with Transporeon (a Talking Logistics sponsor) on data-driven decision making. The seminar is based on the research report “From Gut Feelings to Data-Driven Decision Making: How to Unlock New Value in Transportation Management."

The first seminar session focused on Real-time Transportation Market Intelligence. This second session focused on Autonomous Procurement. What is autonomous procurement? How does it differ from traditional procurement processes? What business benefits does autonomous procurement deliver?

Those are the main questions I explored with Vincent Versee, Supply Chain Consultant at Nestle, and Jonah McIntire, Director of Procurement Products at Transporeon. I encourage you to watch the full video for all of their insights and advice, but here are some highlights from our conversation.

What factors are driving the need to innovate transportation procurement?

In a survey we conducted last year with transportation and logistics executives, 75% of the respondents “Agreed” or “Strongly Agreed” that the time has come to transform the transportation procurement process. Vincent agreed with these results and he shared his perspective on why there is a growing need to innovate transportation procurement:

“I think the main change is that a couple of years ago you could establish relatively stable transportation contracts and routing guides with guaranteed volumes that were relatively constant and you were able to meet,” explained Vincent. “A lot of the supply chain disruptions lately, however, has meant that shippers can no longer guarantee shipment volumes on lanes, which impacts carriers [and their ability to manage and commit capacity across their networks]. This has increased the need to look for ad-hoc (spot) capacity.”

Historically, when shippers needed to find spot capacity, they would “dial for diesels” -- that is, they would call (or email) a bunch of carriers to see who can pick up the load. Others would manually post their loads on load boards and wait to see if a match occurs. Needless to say, these approaches are highly inefficient and costly. They might have been tolerable when spot moves were 10% or less of shipments, but as the percentage of spot moves has increased significantly the past couple of years, so has the need to find a better way.

“Since finding ad-hoc capacity is a very time-consuming process for shippers and carriers, this is what’s creating the need for more intelligent, optimized, and automated approaches to transportation procurement,” adds Vincent. 

What is Autonomous Procurement?

One example of innovation is autonomous procurement. But what exactly is autonomous procurement and how does it differ from traditional approaches?

Before getting into the specifics, Jonah highlighted how “autonomous” is different from “automated,” and he used autonomous vehicles as an example to explain the difference.

“It comes down to ‘Where is the decision-making taking place?’” says Jonah. “In the case of procurement, what this means is that you’re turning over a subset of your transportation budget to software to make decisions.”

For spot procurement, you might have a budget set and constraints around lead times to secure capacity and which types of carriers to consider, “but once those things are established, it’s up to the software to devise its own strategies and tactics and go execute on them,” explains Jonah. “And you judge the success of the software by how well it achieves your goals instead of how well it slavishly follows a rule set.”

Jonah highlighted other aspects of autonomous procurement, including how AI and machine learning, coupled with applied behavioral science, can be used to develop carrier profiles and price predictions. This opens the door to a variety of smart tendering strategies. For example, instead of asking carriers to bid on a load tender, the platform can present the tender to a select number of carriers (based on their profiles) along with an offered (predicted) price -- with each carrier potentially receiving a different price based on their profile. If none of the initial carriers accept the tendered load at the offered prices within a defined timeframe, then the platform can initiate additional tendering rounds as needed, determining which carriers to invite next, what prices to offer them, and the duration of each round.

Vincent, Jonah, and I discussed other questions, including:

• How is Nestle using autonomous procurement in its operations? What feedback have they received from their carrier partners? What have been some of the benefits achieved to date?
• What is the overall business case for using autonomous procurement? Is it applicable for all types of transportation operations or is it best suited for certain cases?
• What advice would you give to other companies that are looking to implement autonomous procurement in their transportation operations? What’s the first step? Any important lessons learned?

Again, I encourage you to watch the full video for all their insights and advice. Then post a comment and share your perspective and questions about this topic.