Tell us what you think

We want to create the best possible experience for our learners. Your feedback helps us to improve the experience for everyone.

Selecting Carriers and Tendering

Objectives

After completing this lesson, you will be able to:

Explain the carrier selection process
Assign carriers to freight orders and freight bookings
Tender freight orders
Explain freight collaboration through SAP Business Network for Logistics

Carrier Selection Process

The image depicts the integration between an external SAP ERP/S/4HANA system and the Order Management, Planning, Execution & Subcontracting and Charges & Settlement components. It shows the key elements involved, including Sales/Purchase Order/Scheduling Agreement, Delivery, Order-based and Delivery-based Transportation Requirement, Freight Unit Building, Freight Unit, Planning/Optimization, Freight Order/Freight Booking/Transportation Unit, Subcontracting/Carrier Selection, Agreement, Calculation Sheet, Rate Table, Scale, Freight Settlement Document, and Purchase Order/Service Entry Sheet Settlement Document.

Once a freight order has been created, a shipper must choose (and communicate with) the business partner responsible for moving the product. We will refer to this as carrier selection.

The carrier is the business partner to whom you subcontract the freight order. The carrier can be different from the executing carrier, which is another business partner role that you can assign to your freight order if the carrier itself subcontracts the execution of the freight order to a third party. That way, you can differentiate between the party you contracted with and those executing the freight move.

Carrier Selection

Carrier selection is used to assign a suitable carrier to your subcontractable business documents (for example, freight or consignment orders) manually or automatically. The aim is to find a carrier with the lowest costs under consideration of the defined constraints.

In manual carrier selection, you manually assign the required carrier to your business documents. If you have configured a check against transportation allocations, the system considers this and checks the transportation capacities (transportation allocations) you have defined for the individual carriers. If, during the allocation, the system finds relevant transportation allocations without capacity or that specific rules are violated by the allocation, warning messages appear.

A separate optimization is available for automatic carrier selection. It considers selected optimization options when determining the most cost-effective carrier for all business documents you have chosen. If no carriers are available, the system does not assign any carrier to the relevant business documents.

The image depicts the Execute Carrier Selection process, which is part of the Freight Order/Booking, Transportation Cockpit, Carrier Selection, and 1-step Planning workflow. The key steps include determining carriers, checking incompatibilities, determining priority/TCM/internal costs, transportation allocations, business shares, continuous move, and Building a ranking list. This leads into another box below labelled Action, which contains the objects of Automatic Assignment, Tendering, and Manual Assignment, leading to the final step of Assigning Carrier to FOR/FB.

Strategy Options

The system takes strategies into account during the automatic carrier selection process. You define strategies either in the transportation lane or in carrier selection settings. Initially, the system considers the appropriate transportation lane for each freight order. This allows it to consider different settings in one run. Considering strategies and settings, the optimizer then creates a carrier ranking list containing the different carrier options. The strategy options supported are as follows:

Cost and Priority
Business Share
Transportation Allocation
Continuous Move

Costs and Priorities in Carrier Selection

In carrying out carrier selection, the system can put more weight on priorities or costs. In terms of priority, the system can determine the most favorable carrier based on your defined priorities. In effect, this means that the system chooses the carrier with the highest priority while considering the various restrictions that may be in place. Alternatively, the system can determine the carrier based on the lowest total cost. In this case, costs can refer to internal costs or charges calculated in charge management.

Carrier Selection Settings

The relevant constraints for the carrier selection process are defined in the carrier selection settings of the planning profile. Some of the decisions taken in the carrier selection settings can be delegated to the relevant transportation lanes if decisions should not be taken globally but are different for some geographical regions. The options selected here include strategies such as lowest cost, business share, and priority. Carrier selection can consider continuous move options and equipment allocations and can tender automatically based on the tendering strategy.

Business Share

Formalized firm relationships often exist with carriers in the form of contracts. These contracts can guarantee an amount of business to be allocated to a carrier. If the required allocation is not met, penalties may result. TM has the tools to track these relationships and to divide business appropriately between different carriers. This avoids dependency on a single vendor. The idea is to use a fixed percentage to dictate the assignment of jobs to specific carriers. When generating assignments, the system can also consider a carrier's capacity concerning specific routes or geographical areas.

When defining the business share context, you create business share buckets. These define the actual business share a carrier is allowed to have. Different buckets are available for business share creation - yearly, quarterly, monthly, weekly, and daily.

You can define tolerances and penalty costs concerning business share. As long as the business share for a specific carrier is within the tolerance limits, it does not affect the cost calculations during carrier ranking. However, penalties start to apply once the share allocation goes beyond a defined level. Tolerances are always defined in percentage terms. Penalties are maintained as numeric values. This number (the penalty) is multiplied by the deviation percentage (the amount outside the defined tolerance range) to arrive at the penalty cost.

Note

If you are working with carriers from multiple geographic locations with multiple currencies, the system uses the internal common currency (maintained in the carrier selection settings) for its calculations to arrive at the correct ranking. The currency displayed in the carrier ranking list is always the local currency of the carrier (the one maintained in the freight agreement).

All freight orders in a business share context are selected for the business share penalty calculations, although these freight orders are not selected during the planning run.

Business Examples

Carrier A has a weekly bucket equating to 75% of the business share on the lane between Hamburg and Frankfurt between the validity period 03.01.2025 to 31.12.2025. In the same context, Carrier B can have a defined weekly bucket of 25%.
A penalty of 1,000 is defined. An excess tolerance of 10% is also specified. During business share calculation, if the excess is 12%, the excess liable for penalty is 2%. This 2 is multiplied by 1,000 to arrive at the total excess penalty cost of 2,000.
Assume that we have two carriers in a business share context: A and B. No tolerances have been defined. Carrier A is awarded 60%, and carrier B 40%. There are already ten freight orders awarded, of which carrier A is assigned six and carrier B is assigned 4. Now, let’s perform carrier selection for an 11th freight order. If carrier B is assigned this FO, carrier A will have a shortfall of business share. If the freight order is assigned to carrier A, carrier B will have a shortfall of business shares. Both options are evaluated by the system and ranked according to their suitability.

Allocation

Transportation allocations allow companies to assign defined capacity quantities to certain business partners. This includes set minimum or maximum capacity restrictions that regulate how much business is permitted with a specific carrier in a particular region for a certain means of transport. A separate business object is used to model these allocations.

Carrier Selection

When using automatic carrier selection, the system will create a carrier ranking list of the relevant carriers for a particular freight order/freight booking. Users can see various information that influenced the selection process for each relevant carrier. This could include the means of transport cost, delivery performance ratings, and others. After automatic carrier selection, the ranking list will be visible in the freight order.

The image shows three freight order/booking options with different truck illustrations and corresponding prices. Option 1 has a price of $1.100, Option 2 has a price of $1.150, and Option 3 has a price of $1.275.

Status Management in Subcontracting

The figure shows which statuses change during the subcontracting process.

The image shows the Subcontracting Process and Freight Order Statuses. The Subcontracting Process includes Carrier Assigned to Freight Order, Carrier Notification Sent, and Carrier Confirmation Received. The Freight Order (Subcontracting) Status evolves depending on the progress of the subcontracting process from No Carrier Assigned to Carrier Assigned, Sent, and finishes in Status Sent with a confirmation status Confirmed.

Watch the simulation Assign carriers to freight orders to learn about the carrier selection process.

ExerciseStart Exercise

Tendering

The image, already introduced earlier, depicts the Execute Carrier Selection process, which includes steps such as Determine Carriers, Check Incompatibilities, Determine Priority/TCM/Internal Costs, Transportation Allocations, Business Shares, Continuous Move, and Build Ranking List. The process leads to Automatic Assignment, Tendering, and Manual Assignment, culminating in Assigning Carrier to FOR/FB. For this lesson, the Action item of the Tendering activity is highlighted.

Once carrier selection has taken place, communication with the selected carrier must be initiated. This process is referred to as order tendering. Different tendering processes can be deployed depending upon the technology used by the carrier. You use this process to tender (offer) a freight order to one or more potential carriers. Tendering is a bidding process, in which you request one or multiple carriers to submit a quote for a transportation service that is defined in a freight order. You can select the carrier that you want to execute the transportation service by evaluating the quotes. The main characteristics of the tendering process are flexible configuration and the reduction of required manual interaction to support ease-of-use and lower total cost of ownership (TCO).

The image shows an example process for Tendering, which is part of the overall freight order management workflow. The steps include Freight Order, Carrier Selection and Ranking List, Freight Order Tendering with Request for Quotation (RFQ) creation and publishing, Carrier Quotation acceptance/rejection with quotation (FQ), and Freight Quotation Evaluation & Carrier Assignment, either automatically or manually with embedded analytics for decision support, leading to the final step of Freight Order Update & Sending to Carrier.

In general, there are two types of tendering. Long-term tendering is where contracts are negotiated for a longer period, for example, a year. Long-term tendering is a process that is covered in strategic freight management, which is also a functionality of TM, but not covered here. Short-term tendering is where tendering is executed based on specific orders. This is known as order tendering. TM supports the following short-term tendering scenarios:

Peer-to-Peer Tendering
Broadcast Tendering

The strategies for each are determined in tendering profiles in TM.

Parties and Roles in the Tendering Process

At least two parties are involved in the tendering process - a customer who wants to subcontract a transportation service that is defined in a freight order, and a supplier or carrier, who potentially carries out the transportation service. There are two roles on the customer side of the tendering process. The first is a transportation dispatcher, who is responsible for the transportation service, that is, the freight order. The second is the tendering manager, who is responsible for configuring and executing the tendering process and acquiring an acceptable quote from a carrier to perform the transportation service.

Manual and Automatic Tendering

When a transportation dispatcher initiates the tendering process, they have two options: manual process configuration or automatic tendering. If they want to tender only a single freight order, the transportation dispatcher can choose between the two options. If they initiate a tendering process using manual configuration, the tendering manager must configure and start the tendering process manually. If the transportation dispatcher wants to tender more than one freight order, they must initiate automatic tendering and use the automatic tendering configuration in the system.

Peer-to-Peer and Broadcast Tendering

The image depicts a freight order process with two main components: Peer-to-Peer and Broadcast. The Peer-to-Peer component shows a list of carriers, including Carrier ABC, Carrier XYZ, Carrier 123, Carrier DEF, and Carrier 789. The Broadcast component shows a list of carriers, including Carrier ABC, Carrier XYZ, Carrier 123, Carrier 456, and Carrier DEF. The freight order is connected to both the Peer-to-Peer and Broadcast components through RFQ (Request for Quotation) links. Additional details are explained in the following paragraphs

Peer-to-peer tendering is a process whereby freight orders are tendered sequentially or "offered" to preselected carriers. Peer-to-peer tendering involves the sequential sending of freight requests for quotation (freight RFQs) to each proposed carrier. The system waits until the carrier sends a freight quotation (FQ), or until the maximum response time has passed. If the carrier does not send a quote within the maximum response time, the peer-to-peer tendering process continues, and the system sends a request for quote to the next carrier. If peer-to-peer tendering ends without an acceptable quote, the tendering process continues with the next tendering process step that you have configured. If the carrier sends a quote before the maximum response time has elapsed, the system evaluates the quote and can either accept or reject it. In the case of rejection, a new RFQ is sent out. The process continues until at least one acceptable FQ has been received. The system awards this a Quotation Acceptable evaluation result and the process ends successfully. There are two types of peer-to-peer tendering: response required and no response required.

Broadcast Tendering

Broadcast tendering is a tender process whereby freight orders are simultaneously tendered (offered) to preselected carriers. All carriers have to respond within a given maximum response time. There are two types of broadcast tendering: best offer and first acceptable offer. Depending on which one of these is being used, either the first acceptable quote wins or, after the maximum response time, the system evaluates all the acceptable quotes and selects the carrier that has submitted the quote with the lowest price. If broadcast tendering ends without an acceptable quote, the tendering process continues with the next tendering process step that you have configured.

Freight Collaboration with SAP BN4L

Tendering Profiles

The tendering profile contains basic tendering data and is a prerequisite for automatic tendering. You can use a tendering profile when you manually create a tendering plan. Within the profile, you can define multi-step tendering. This allows a company to mix tendering types. For example, you can first use peer-to-peer tendering, and if this is unsuccessful you can use broadcast tendering. In a tendering profile, you can make settings in relation to the following options:

Choose from tendering types — peer-to-peer, broadcasting (best offer, first acceptable offer)
Choose from tendering processes — direct or RFQ-based
Choose fully or semi-automatically rules-based tendering (response time and price limits, automatic retendering)
Configure the tendering process and RFQ publishing
Set up web-based, e-mail, B2B tendering communication
Set up authorization-based RFQ processing and data visibility (carrier authorization to change the price and delivery dates, view tender price limit, stop date and rejection code reasons, support of free text and attachments)
Make settings in relation to currency

Communication Methods

There are several communication methods that support the tendering scenarios. First, SAP S/4HANA Transportation Management natively supports e-mail. Requests for quotation (RFQs) can be received by e-mail and quotations can be submitted without the need to access a TM system at all. In this case, an RFQ is sent to a carrier by e-mail message. The carrier responds to the e-mail using a regular e-mail client on a PC or mobile device. The e-mail is then converted (using PI) into a quotation. Carriers can accept RFQs directly, reject them with a specified reason or accept them with changes.

If a subcontractor is more technically advanced, EDI (electronic data interchange) message communication can be used. In this situation, a copy of the freight order is created for the carrier (the tendering manager or system administrator can control what is included in the copy that is visible to the carrier). The copy is persisted in the system to retain what was communicated to the carrier. A freight request for quotation (tendering request) is sent via PI and received as a forwarding quotation in the supplier’s TM system. The carrier can accept the order directly or, if the first carrier rejects the order, the freight order will be sent to the next carrier. Finally, a quotation confirmation is sent back to the customer and is converted into a quotation (tendering response) in the customer’s TM system. The change controller allows you to react to changes in the FO, for example, by stopping tendering when there are major changes in the FO.

In addition, SAP offers SAP Business Network, a cloud service with global coverage built to connect logistics business partners; to collaborate across companies and jointly manage transactions, exchange documents and data, and share insights.

SAP Business Network Freight Collaboration supports end-to-end collaboration in logistics processes from contracting to settlement. It also allows carriers to respond to tendering requests for quotation (broadcast or direct tendering) and process freight orders through web portal applications or integrate via API to process freight orders in their frontend of choice. Each carrier in the network is provided with their own user IDs and passwords, and the relevant authorizations to restrict visibility to the loads that have been tendered to them.

The image depicts a freight order process involving a Shipper, the SAP Business Network, and Web Portal Applications. The Shipper sends a Freight Order, which is then processed through the SAP Business Network. The SAP Business Network facilitates B2B Integration via API, as well as Email and EDI Message communication channels.

While the standard web portal applications in SAP Business Network Freight Collaboration are delivered by SAP and can be used out of the box, the use of API requires custom integration.

With regards to tendering, the process works as follows. The request for quotation (RFQ) message is triggered from the shipper’s TM system. Post receiving the message and persisting the request for quotation in SAP Business Network Freight Collaboration, the RFQ is sent to one or more carriers. The carriers respond to the tendering and the quotation is sent back to the shipper’s TM system. Award notifications are again distributed via SAP Business Network Freight Collaboration.

If shippers work with several carriers through SAP Business Network, they only must integrate once to collaborate across the logistics processes and share their freight orders, requests for quotation, freight bookings, freight documents for invoicing, … with their network. This simplifies an otherwise tedious process of integrating with each carrier individually.

The image depicts the supported processes in the SAP Business Network Freight Collaboration, which include Contracting, Dock Appointment Scheduling, Execution, and Settlement. The Shipper and Carrier/Freight Forwarder interact with the SAP Business Network through various API calls for processes such as Freight Request, Freight Tendering, Freight Booking, and Freight Scheduling.

Next lesson