Lots of spots? Bring on the bots!
Chief Executive Officer | Keelvar
As global air freight volatility continues, many leading procurement teams are turning to automation and artificial intelligence to combat the turbulence, says Keelvar’s CEO Alan Holland.
The disruption caused by Covid-19 reached every facet of the global supply chain – from inventory shortages to factory shutdowns. One critical challenge procurement and supply chain leaders continue to battle today is Covid’s impact on air cargo transportation.
In fact, despite the light at the end of the tunnel, dramatic drops in air cargo capacity and commercial flights continue to significantly affect supply chains. Overall, air cargo capacity is down 22 per cent year-on-year. Combine that with an increase in demand, and you’ll see why air freight sourcing has become more complex than ever.
As global air freight volatility continues, many leading procurement teams are turning to automation and artificial intelligence to combat the turbulence and navigate markets that are changing faster than ever before.
The pressure is on for air
Chances are you’ve had to cancel a trip or two over the last year – and perhaps some cases maybe because the airline cancelled on you. According to weekly flight data from Statista, for the week starting October 5, 2020, the number of scheduled flights globally was down by 46 per cent compared to the same week in 2019.
The decrease in commercial flights has resulted in less capacity for air cargo, causing almost every airline to stop honouring contract rates and move to a spot bidding model. Making matters more difficult, the elimination of flight connections beyond major hubs increases demand for truck lanes to replace the lost flight connections for last mile delivery.
To add to the pressure, procurement teams who typically rely on ocean freight to transport their goods are also turning to air given decreased capacity, rate and demand fluctuations, a lack of available containers and carrier limitations across the ocean shipping market. Since ocean freight previously accounted for 90 per cent of goods distributed worldwide, this heightened demand has made the air freight market desirable for speed and efficiency even as capacity plummets. If shipments are delayed due to ocean transport bottlenecks, air freight is typically the only other mode option.
As a real-world example of that, McKesson’s VP of Operations, Tad Strong, explained 2020’s disruptions on a recent webcast hosted by Procurement Leaders: “We shifted from an ocean [shipping] model – 90 per cent ocean, 10 percent air – to flipping that” in order to transport time-sensitive personal protection equipment (PPE) as the pandemic spread.
Spot bidding is on the rise
Spot bidding has always occurred in logistics procurement, but 2020 brought it to new levels. With both airlines and shippers relying on the spot market to allocate cargo capacity, procurement teams are forced to engage in spot bidding at scale and make quick decisions in order to reduce supply and business risk. But effectively managing the increased quantity and pace of spot bidding events is beyond human capability. The manual process requires days of data collection, extends the award process and often produces subpar decisions.
Plus, it’s been commonplace that reactive, spot bids are often negotiated offline outside of a formal e-sourcing process, resulting in untracked data that teams can’t use later for forecasting and reporting purposes. These offline negotiations disable the wider team from viewing all bidding activity and tracking spend, and their adherence to sourcing process compliance is often unknown.
In the age of the pandemic, spot bidding “by hand” is not only time consuming and tedious for employees who should be focusing on more strategic initiatives – it’s also bad for business. As a result of lessons learned, many procurement teams are leveraging artificial intelligence (AI) to make important sourcing decisions quickly as the market continues to evolve by the hour.
Sourcing bots to the rescue
Intelligent sourcing automation and optimisation is providing procurement teams the competitive advantage they desperately need -- in times of crisis and normalcy alike -- to react to market changes that drive needs for new bidding events. AI-powered sourcing bots are able to establish spot bidding and mini-tender events within minutes, managing and automating tedious tasks such as handling all the back-and-forth messaging with invited carriers; collecting bid data from carriers; conducting rate card, zonal rate and alternative airport lookups; and generating award recommendations.
Plus, through the use of AI, bots are able to learn from repeated processes and buyer preferences over time to further increase efficiency and improve outcomes. Looking toward the future, we can even expect bots to be able to recommend carriers based on decisions made in the past – similarly to how Netflix recommends films based on your taste.
Most importantly, automated sourcing enables teams to free up significant time to focus on strategic work and best practices. Eliminating this additional burden of spot bidding allows the workforce to take on higher-value projects that are better suited for human reasoning and strategic evaluation.
Agility powered by automation
The effects of the pandemic are here to stay – and as businesses continue to strive for resiliency, their procurement teams need to prioritise speed, responsiveness and agility across sourcing and transport programs. Efficiently executing the increased number of smaller-scale and urgent air transport bidding events with category-smart automation can enable shippers to increase competition and savings, improve decision quality, empower traceability, and most importantly, deliver cargo to customers on time. As a result, procurement teams will better position their company to survive uncertainty and ensure business continuity regardless of disruption.
About the author
Previously a lecturer in Artificial Intelligence at the University College Cork (Ireland) Computer Science Department, Alan founded e-sourcing software company Keelvar in September 2012 when he left the University to commercialise advances in AI for procurement teams. He specialises in optimisation, game theory, and mechanism design. He is a frequent speaker and contributor to supply chain and procurement conferences and publications.
Posted on: March 17th 2021