Every year at Chainalytics, our global transportation practice supports anywhere from 30 to 50 transportation procurement events – depending on the state of the freight market. While much of our time is spent on the execution of the actual bid event, we’ve come to realize that the pre-bid work is what really has the most impact on the success of the tender.
The preparation phase is often under great time pressure when stakeholders are pushing for the bid launch, but moving too fast can easily backfire. The old adage rings true: Failure to plan is planning to fail. With that in mind, we wanted to offer some tips to make sure your next tender event is delivering the expected results to meet your future transport needs with minimal cost and the best customer service.
The preparation phase is often under great time pressure when stakeholders are pushing for the bid launch, but moving too fast can easily backfire. The old adage rings true: Failure to plan is planning to fail.
1. Evaluate your market position
Thorough analysis of the market and your position in the market should be one of the first things you do when preparing for your procurement event. This exercise is key to understand the current market conditions on a macro level (e.g., capacity levels) and general outlook (e.g., demand forecast, GDP growth) in order to set savings expectations.
After analysing the external factors, it is crucial that you understand how your company is performing against others in the same market. Benchmarking your lanes and the competiveness of incumbent carriers as well as understanding your own rate performance against the market via a market intelligence platform like the Freight Market Intelligence Consortium (FMIC) provides valuable insight in defining your procurement strategy. Only when you know how you are performing against the market are you able to set the right tender strategy. You should ask yourself questions like:
- Which regions do we typically perform strongly in? Which can be improved?
- What carriers are under performing?
- Is the timing and market conditions right to achieve the desired results?
2. Invite the right carriers
Only when you have the right carriers included in your bid event will you be able to achieve the desired results – savings and/or service improvements. Therefore, in the preparation phase, it is important to analyse your current pool of carriers and the additional ones you want to invite to the tender.
Carrier networks are continuously changing. Your incumbents might have been the best option during the last procurement cycle, but may or may not be the best fit within the current market. Knowing the market and knowing who to invite to the bid will be important when ensuring active bidder participation and interest. There are multiple sources of information which can be used to gain additional input on carriers which might fit your shipping profile and could be of great added value like the FMIC Carrier Database.
3. Determine your allocation strategy upfront
Your strategy for allocating carriers and lanes should be reviewed and refreshed during this phase. Oftentimes, it is your technology (e.g., TMS) and back office organisation that will drive the number of carriers you can manage and on how lanes should be allocated. Knowing how many carriers you can realistically manage in your network will also provide direction on how many (and which) carriers need to be invited in order to have the desired outcome. Be sure to also discuss the willingness and ability of carrier changes in key markets and/or with customers with special requirements.
Knowing how you want to allocate lanes to carriers (for example, one carrier per destination country/region or one carrier per origin site) is a key input for setting the bid structure and forces the carriers to return the bids accordingly so you can model the desired scenarios. Bid responses in the wrong structure creates a lot of additional work during analysis, and also requires additional alignment and discussion with carriers.
4. Develop a clear and complete RFP document
The typical Request for Proposal (RFP) document explains to carriers what is required of them and sets out your tender needs, such as the shipment profile, type of goods moving, seasonality details, and details on what should be included or excluded from the rate (e.g., fuel, taxes, and tolls).
In our years of experience, we’ve seen almost every variety of RFQ/RFI/RFP — ranging from one page with basic transport requirements to entire booklets. Our general recommendation is on the detailed end of the spectrum. You should provide enough detail so suppliers know what they are providing rates for and what to expect if awarded the contract. Not only will this results in more accurate rates, but it can also help to mitigate potential issues when going live with a supplier. At the same time, it is important to not overwhelm the carriers. The RFP document should be structured, clear, and to the point.
5. Leverage transport sourcing technology
While some of our customers still use Excel and do some email-based sourcing exercises, we almost always involve some degree of sourcing technology in the bid events that we support. A sourcing tool drives efficiency, eliminates unnecessary manual work (and associated costs), and speeds up the overall analysis and decision-making process. With so many technology options available today, it doesn’t really make sense to dedicate a resource to uploading individual bid sheets in a database. This is something carriers can easily do themselves via a procurement platform, which gives live feedback when bids do/don’t align with the pre-set bid validation rules.
Our general recommendation is to ensure the technology is relatively simple and easy to use as to not to scare off any potential carriers from participating in the bid event. There are various platforms available with different capabilities and price levels (e.g., Coupa, Jaggaer, JDA, and Keelvar). Regardless of which one you choose, the increase in efficiency always pays off.
The time and effort that you spend in the preparation phase will set you up well for the later stages of the procurement event and help deliver the best outcome. If you’re unsure if your transportation sourcing strategy is effective or need help conducting the next one, don’t hesitate to get in touch. Chainalytics has the experience and technical skills needed to achieve your desired results.
Stan La Haye is a Sr. Manager in the Transportation practice at Chainalytics. In this role, he delivers value to Europe-based clients through projects focused on transport procurement, logistics sourcing, TMS assessment and implementation, and process optimisation.
Jessica MacDiarmid is a Consultant in the Transportation practice at Chainalytics and is based in Europe. Her logistics and analytics experience are leveraged to support the delivery of transportation optimisation projects.
