How They Did it: Service and Price Come Together

Regardless of the mode, shipping is complicated. Shippers may have limited control over freight expenses due to their intrinsic complexities. Meanwhile, freight forwarders often claim they have limited control over the complex cost structures associated with shipping, and shift most of the risk back to shippers, who are typically in a weak negotiating position while trying their utmost to satisfy their customers with timely—and on-time—deliveries.

That was certainly the case for those of us working with logistics and freight forwarders at Knorr-Bremse Asia Pacific Ltd. Like many shippers, we often found we were trading lower costs for inadequate service levels that satisfied no one in our organization. In order to address those constraints, we introduced a structured program that provides feedback from our internal operations departments to our freight forwarders about their performance, and links a quantifiable “service factor” to the transportation provider who is assigned an order. The service factor is the measure we created to rate service level performance.

The result: In order to gain more of our business, freight forwarders are motivated to cooperate and strive to deliver continuous improvement on their service factor. That has allowed us to eliminate penalty clauses and create a culture of cooperation that provides a new view on the value spent on freight deliveries. This is how we did it.

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