Freight Forwarding

Advanced Pricing System (APS) is the Key to Competitive Pricing

This white paper explains the process and functions of Samsung SDS' new pricing system, its use case of intelligence process automation (IPA) solution called Brity Works, and its logistics innovation by adopting overland freight rate forecast modelling to advance its pricing operation.

Cost reduction has always been a big challenge in the logistics sector due to its low margin compared to other sectors. Samsung SDS too is not free the challenge. Starting the logistics business process outsourcing(BPO) business in 2012 with its affiliates first, Samsung SDS today provides fourth party logistics(4PL) services including logistics optimization and tailored consulting, based on its extensive global network and single logistics platform Cello.

After growing at a CAGR of 36% since 2012, its Logistics Business Unit reported 4.4 trillion won in revenue in 2018. Aiming to reduce logistics costs of customers, it has decided to build a new system and enhance its pricing team.

This white paper explains the process and functions of Samsung SDS’ new pricing system, its use case of intelligence process automation (IPA) solution called Brity Works, and its logistics innovation by adopting an overland freight rate forecast model to advance its pricing operation.

[Figure 1] Samsung SDS Logistics Business Unit’s Revenue Growth

Advanced Pricing System

 System Comparison by Key Pricing Process

Before adopting a new pricing system, we interviewed pricing managers and procurement experts at Samsung SDS to find out what functions need to be included in the new pricing system.

First we defined what functions each of the four processes – pricing request, bidding, contract, and inspection – would need. For pricing request, we added functions of request, registration, and history management. In bidding, carrier pool management, RFP, public announcement, sealed bidding, and evaluation were included. Contract process includes contract request, contract signing, and tariff(or rate) entry. Inspection process has functions of inspection and evaluation. All in all, four processes and 44 functions have been identified.

[Table 1] Pricing System Comparison

In addition, we collected the voice of employees(VOE) from overseas branches, operation, development and management teams. Below are some of the requirements they had.

①  Reduce human errors in freight rate registration due to rate data not integrated with bidding, contract and tariff management systems

② Reduce human errors in freight rate registration due to rate data not integrated with bidding, contract and tariff management systems

③ Enable LSPs(carriers) to directly connect the pricing system to submit quotes and update information

④ Enable users to check the pool of carriers, their credit ratings and details on risk factors

A Pool of Qualified LSPs (Carriers)

To ensure competitive pricing and improve LSP selection/management processes, Samsung SDS decided to create a pool of qualified LSPs. What we did first was looking at how global logistics companies handle their partner pool management.

Both Company A and Company B have a contact page on their website where those who are interested in becoming their partner can apply. Following respective internal rules, they verify applicants, using documents like T&C agreements, certificates and credit rating documents. Samsung SDS too established its internal standard and decided to ask prospective partners to submit their T&C agreements, certificates, and credit rating reports.

In addition, in order to secure quality LSPs which can provide reliable services, we accepted carriers with a credit rating of CCC or higher only and checked their logistics execution capability with licenses required by the relevant law.

In the process of actually creating a pool, we shortlisted candidate LSPs recommended by sales and operation teams as well as those which provided reliable services for the last three years. We also included logistics companies recognized as qualified under Article 38 of Basic Logistics Policy Act and top 100 companies by revenue in logistics.

Afterwards, we created a pool of LSPs after verifying them internally and finalized the pool. We contact LSPs in the pool first for our bidding and ensure that they continue to provide reliable services by evaluating their service quality each year.

[Figure 2] Company A’s Partner Pool Management Process

Intelligent Process Automation (IPA) Adoption

Uploading Email Quotation Submission on System

Since September 2019, Samsung SDS has adopted APS in overland transport/warehousing pricing of its external businesses in Korea. Although we asked LSPs to submit quotes via a portal website for the sake of objective and fair operations, it took as much as 20 to 30 minutes for a pricing manager to guide an LSP through portal membership and quotation submission. LSPs too found it much more difficult to submit quotes via the website compared to using emails.

To address this issue, we have decided to adopt Brity Works, the automation solution of Samsung SDS. Until then, automation solutions were mostly adopted to replace simple, repetitive tasks done by workers.

At Logistics Business Unit of Samsung SDS too, Brity Works was adopted to reduce repetitive, routine tasks like visibility inquiry emails, carriers’ schedule data update, shipment data sharing, and shipment document entry.

특히 물류Pricing시스템에 적용된 Brity Works 적용사례는 단순히 삼성SDS 담당자의 반복적인 업무에 적용하여 작업시간을 단축하는 것이 아닌 물류파트너 실행사 담당자가 견적을 제출하는 시간 또한 단축하여 실행사의 편의성까지 개선하였다는 점에 특별한 의의가 있다.

Overland Freight Rate Forecasting Modelling

Market-Based Rate Forecasts

Having an accurate rate forecasting model is critical to both shippers and logistics companies. Freight rates are sensitive to changes in the market and move unpredictably. This is why global logistics companies have been working on collecting objective data and analyzing a range of factors that could impact rates.

In international transport, freight rate forecasting has been used for a long time. Most global forwarders have started market & rate forecasting since the mid-2000s. Some have even adopted a system-based forecasting model. Collaborating with a consulting firm, Samsung SDS too analyzes factors affecting rates in the air and ocean freight markets.

However, unlike international transport, it is hard to find best practice cases in overland transport about rate forecasting models. At Samsung SDS, since late 2019, we have been working to develop a rate forecasting model in order to offer more competitive rates to customers.

We analyze the overland transport rates of our external businesses in Korea over the past three years since 2017, looking into the feasibility of their cost components and major variability of each item. Based on the interviews we had with 32 logsitics experts at Samsung SDS and the surveys of our key customers and LSPs, we have identified 18 cost components as below.

However, we have found that the more cost components you have, the harder it gets to forecast rates as volatility increase too. Also, since a majority of truckers are small operators, detailed cost management isn’t feasible. Thus, we have selected fuel, wage and inflation as big three indicators.

Using the fuel prices from Opinet of the Korea National Oil Corporation for fuel costs, the standard wages by industry from Statistics Korea for wage costs, and the consumer price index from Statistics Korea for inflation, we forecast rates by weighting these three indicators and reflecting their ups and downs.

Conclusion

Samsung SDS Logistics Business Unit has continued to achieve great outcomes through pricing innovations. At the start of the year 2020, APS is drawing so much attention because the integration of business management system, APS and tariff management system is expected to help us analyze business issues and pricing data and thus optimize logistics costs and expand businesses.

We plan to enable sales teams to check route-by-route rate forecasts on mobile while also keeping pricing managers informed on carriers’ operational issues and transport risks. In addition, by looking into order and volume data, we will offer multifaceted information including how freight consolidation can help reduce rates.

With more than 30 years of expertise in technology, Samsung SDS is capable of easily leveraging emerging digital technologies. Plus, it has its own research and development centers to further develop those technologies. If its APS analyzes pricing data and provides a range of reports for monitoring and business support, it can be a true APS in every sense of the word. It would certainly be interesting to keep an eye on how its APS evolves through data-driven digital transformation.  

To find out more about APS System of Samsung SDS, visit Cellologistics.com and download the whitepaper.

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