7.8 Tools: Mode and Carrier Selection

Now that you've learned a little about transportation modes, economics, and contracts, you may be wondering, "How do you pick the right carrier?" Partner selection is really all about comparing your options. Multi-criteria analysis is therefore a perfect tool. Before we talk through an example, let's discuss four reasons why you want this tool in your managerial toolkit.

1. Intuitiveness: Multi-criteria analysis is intuitive, making it a great tool for communicating your process and your results to colleagues.

2. Quantifiability: Multi-criteria analysis enables you to quantify subjective criteria. It also allows you to mesh both quantitative and qualitative issues into a cohesive story.

3. Applicability: Multi-criteria analysis is widely applicable. You can use it in any situation where you have to compare alternatives (like carrier selection).

4. Disciplined: Multi-criteria analysis invites you to do your homework in a systematic way. It brings discipline and visibility to the selection process.

Now, let's offer a warning: Multi-criteria analysis is only as good as the effort you put into it. The old saying, "Garbage In, Garbage Out" (GIGO) applies.

Multi-criteria analysis follows a simple and straightforward 6-step process:

• Step 1: Decide on Criteria- Your first step is to identify the most critical criteria. In other words, ask your team, "What makes a good transportation provider?" Table 7-4 identifies the criteria most often used by shippers to choose the best mode and the right carrier.

  Table 7-4

  Common Mode and Carrier Selection Criteria

  Performance Criteria	Relational Criteria	Stability & Growth
  Cost; i.e., Competitive Rates	Quality of Salespeople	Financial Stability
  Transit-time Reliability	Quality of Operating People	Reach & Ability to Scale
  Door-to-door Delivery Time	Trustworthiness
  Frequency of Service	Willingness to Collaborate
  Equipment Availability
  Special Equipment
  Frequency of Service
  Pickup & Delivery Service
  Shipment Expediting
  Shipment Tracing
  Freight Loss & Damage
  Line-haul Services
  Scheduling Flexibility
  Claims Processing

  For our example, let's select the following five criteria: Cost, transit-time reliability, delivery time, trustworthiness, and financial stability (see Table 7-5).

Table 7-5

An Example of Multi-Criteria Analysis (aka, Weighted Factor Modeling)

		Alternative Carriers Being Evaluated
Criteria	Weight	Count On Us	Always On Time	In Your Dreams
Cost	.2	70	70	100
Reliability	.3	95	98	60
Delivery Time	.2	90	90	70
Trustworthiness	.2	90	90	70
Financial Stability	.1	90	95	80
Carrier Score	1.0	87.5	88.9	74

• Step 2: Set Weights- You next need to determine how important each criterion is. One way to do this is to imagine that you have a stack of 100 pennies. Now, allocate pennies to each of your criterion. The number of pennies you dedicate to each criterion is your weight. Be sure to put in your decimal point; i.e., 30 pennies = .30. Note: When you add up your weights, they should equal 1.0.

  For our example, let's weight reliability as most important and give it a .3. Cost, delivery, and trustworthiness each receive a .2. That leaves .1 for financial stability.

• Step 3: Define Scoring System- You need a scoring system for each of your potential partners. People use a variety of scoring systems such as 1-3, 1-5, 1-10, or 1-100.

  For our example, we use the 1-100 scale to give you more granularity and variability in your overall scores. That is, the difference between a 3 and a 4 on a 1-5 scale is pretty big. If one carrier truly is just a little better in on-time delivery than your other options, you want to be able to give the carrier a few points (e.g. 80 compared to 75) without skewing your results.

• Step 4: Evaluate Options- At this point, you are ready to go to work and collect the data needed to fill out your comparison matrix. Remember, the quality of your effort will determine the quality of your decision.

  Looking at our example, you would conclude that "In Your Dreams" made the list because of its low rates. It doesn't measure up in the other performance areas. "Count On Us" and "Always On Time" are both fast and highly reliable. However, the lower scores for cost indicate that you are going to have to pay more for the higher service levels. "Always On Time" has slight advantages in financial stability and reliability.

• Step 5: Calculate Results- Here, you calculate each carrier's overall score by multiplying the score for each criterion by the associated weight and adding up the results for all of the criteria.

  Looking at our example, "Always On Time" is your highest weighted carrier. Your results do suggest, however, that "Count On Us" is a viable backup. You want to stay away from "In Your Dreams" no matter how low the rates are.

• Step 6: Proactively Monitor Performance- Once you have selected your carrier of choice, you need to monitor performance. You will use the results to help you manage the relationship and to improve the carrier-selection process.