Multinational shippers will become more attracted to book shipping capacity collectively using centralized freight procurement systems when ocean rates begin to increase again, an Electrolux supply chain executive said.
“When rates go up, you can’t duck your head. That’s when (large shippers) need to leverage their strength and global reach to make those headwinds as light as possible by making package deals, “ said Bjorn Vang Jensen, Electrolux’s vice president of global logistics.
Electrolux began to centralize its freight procurement seven years ago, and has achieved significant economies of scale and market clout through such efforts, Jensen told the Supply Chain and Logistics Summit 2011 in Singapore this week. The company recently launched a 153,000 20-foot equivalent unit tender and spends about $1.5 billion annually on transport services.
“The power of centralized procurement is greatest when headwinds are strongest. You can’t beat the market, but you can beat your competition,” Jensen said.
Centralization, he said, allows Electrolux to see how it “can combine inward and outward movements in a way some locally cannot.”
The former A.P. Moller-Maersk executive said any major OEMs looking to centralize companywide freight procurement should first ensure board-level support. To ensure there is no ambiguity either internally, or when dealing with carriers and third-party logistics providers, “you need the full force of the company behind you," he said.
“In Electrolux only two people are authorized to negotiate or sign contracts with carriers or forwarders,” Jensen said.
The power to cancel contracts with 3PLs providers is similarly concentrated. Electrolux's service providers are required to sign a clause stating that if they offered anyone at the company a lower rate locally than already agreed centrally, then that rate would be backdated globally for the entire contract.
“It hasn’t happened yet, but I hope it does,” he half-joked.
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