What are the 4 freight sourcing paradigms? Origins of continuous sourcing in freight
For years, much of the freight procurement process has worked to a different timetable from other commodity markets. Right now, truckload bid season is beginning. But is “bid season” itself becoming outdated?
The RFP paradigm was always: “Gather the data. Build the bid. Invite suppliers. Negotiate rates. Award the business. Then spend the following months managing everything that changes.”
In 2021, when Prodensus was founded, freight volatility exposed just how quickly the assumptions behind an agreement could unravel. Our later analysis, covering June 2023 to June 2024, found 40-foot container spot prices to be around 2.7 times as volatile as Tesla shares and seven times as volatile as Brent crude oil.
We experienced this first-hand while working at Eaton’s IPO (International Procurement Office). We found that securing back-to-back agreements that made sense for all parties was becoming increasingly difficult as each party became more sophisticated and had more access to data. This ultimately led to more bids and a sense of: “Why should each sourcing exercise feel like starting again?”
Research by Angela Acocella, Chris Caplice and Yossi Sheffi later examined that same tension: fixed-price freight agreements can become outdated as carrier networks and market conditions change.
So we built this quasi mini-RFP, continuous bidding process. The team bundled together existing tools, hired six analysts, all FTL experts, and built a process and bespoke tools that could just about do the job. We also got some help from JAGGAER and Transplace. Shoutouts to them!
The big picture for continuous sourcing was inspired by how energy markets procure. The question was: “How do you move with an ever-evolving market while information asymmetries between buyer and supplier become smaller and smaller?”
That thinking is reflected in MIT FreightLab’s work on matching procurement methods to the freight: contracts for steady lanes, with a more flexible mix for new or variable demand. RXO’s offering spans annual bids and mini-bids, showing how both approaches already coexist in practice.
After that experience, we knew things had to change in freight procurement, and Prodensus grew out of that thinking. “Pro” for procurement; “Densus” from Latin, with senses of “frequent” and “continuous”. Together, they captured our ambition to make procurement a connected, ongoing process, carrying information and learning forward from one decision to the next.
So what did a bunch of freight academics do? We put it into a “Paradigm slide” and originally called it eContinuous sourcing, like a bunch of boomers. See below on when each approach could or should be used.
Paradigm | Shipper sophistication required | When to use it | How to use it well |
|---|
Continuous Sourcing | Highest: Reliable, connected data; ongoing performance monitoring; clear ownership and agreed triggers for commercial decisions. | Planned, recurring freight that needs ongoing commercial management. | Review rates, volumes, capacity and service. Agree what should trigger renegotiation or a targeted bid, while respecting existing commitments. |
Competitive RFQ / RFP | High: Ability to consolidate freight data, define requirements, compare supplier proposals and manage contract awards. | A planned sourcing exercise with a defined scope, such as an annual network review or a new contract. | Set clear volume assumptions, service requirements and award criteria. Establish agreements you can measure against actual performance. |
Project Sourcing | Moderate: Ability to scope a specific requirement, coordinate stakeholders and assess the total project cost. | A distinct requirement needing a dedicated sourcing effort, such as an urgent distribution network change. | Define the scope, duration and specialist requirements before seeking offers. Assess the total cost of delivering the project. |
Spot Quotation | Lower: Ability to specify a shipment, assess available offers and confirm a suitable carrier. | An immediate requirement, such as overflow freight or a rejected load. | Secure suitable capacity quickly, confirm service requirements and record the cost and reason for the exception. |
To read more about the sources of how this evolved see:
[1] MIT Center for Transportation and Logistics: FreightLab.
[3] RXO: Transportation RFP Management.
[4] Enterprise Ireland: Start-Up Showcase 2021, page 53. Prodensus pioneers dynamic sourcing solution enabling continuous rate negotiation.
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