Transportation Tender for Last Mile Delivery
  • cost & risk reduction by adjusting the pricing model
  • elimination of non-value-added substructures

Contact

LinkedinXing
Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

Tender Freight Forwarding and Distribution Logistics

 

Modern-day supply chains increasingly rely on the expertise of logistics service providers on water, air, rail, and road to increase flexibility, better utilise capacity, and provide better, faster, and cheaper freight shipping to customers. To maximise these strategic advantages without losing control and taking inadvertent risks, the selection, the negotiation of terms and conditions, as well as the measurement and control of freight forwarders and distribution logistics service providers are all extremely important. What role can the tendering of freight forwarding and distribution logistics play as an efficient and effective tool in this context? When considering this, further questions arise such as:

  • Why is the strategic tendering of freight forwarding and distribution logistics service providers useful?
  • How do you tender freight forwarding and distribution logistics?
  • What are the optimisation levers and strategies?
  • To what extent can digitalisation help?

In the following section, we briefly highlight the most relevant questions and then give recommendations and an outlook on the potential added value of freight tendering or distribution logistics tendering.

 


 

Why does the strategic tendering of freight forwarding and distribution logistics make sense?

 

The ever-changing market landscape, technological innovation, and the complexity of achieving the optimal conditions in each individual situation all require regular adjustment and make every tender unique.

The tender is not only a price negotiation, it also offers an excellent opportunity to optimise and implement supply conditions, the procurement and supply processes, and aspects of internal demand, all in a targeted manner and together with the supplier.

The results from effective tendering vary and are regularly between 5% and 25%, depending on the degree of maturity and the specifics of the logistics network. In many industries, logistics and freight costs contribute to a significant portion of total costs, which is why these savings are often decisive for competition and can make a large impact on EBITDA.

If your company has not conducted an intensive tendering exercise for 2 years, it is advisable to have the opportunities professionally examined and, where necessary, realised through a strategic tender.

 

The three key steps of tendering freight forwarding and distribution logistics


Step 1: Understand the freight and distribution logistics profile

 

A deep understanding of the data, processes, and requirements is the foundation of any successful freight or distribution logistics tender. This step is neglected in many companies. Why is that? And why is freight forwarding and distribution logistics tendering so important in the first place?

The most common reason is that a well-functioning database is a major expense for many companies. Many departments reach analytical and methodological limits and often the added value of structured data analysis is not seen in the context of tenders. Especially when it comes to processes, requirements, and pricing models, companies and logistics experts often rely on past experience and existing procedures. After all, it has always worked well this way, why should it be different now?

Such shortcomings stand in the way of a detailed, fact-based logistics profile, but why is this even important?

There are two reasons. First, the logistics services available to a company are always changing, and so are a company's own requirements, routes, and volumes. To deal with these changes, the requirements need to be defined regularly and freight and distribution logistics must be re-adjusted accordingly. Second, the logistical operations and requirements are so complex that without a data model and the structured recording of requirements and processes, it is impossible to reliably assess the current situation and use it to develop a suitable strategy.

As a basis for our tender projects, we develop a comprehensive data model which includes all routes, distances, service levels, weight and volume measures, and price and logistics conditions across all shipments. In addition, we work with the logistics specialists and the relevant departments to determine the logistics requirements profile. This takes into account the current ordering, shipping, and packing processes, as well as the overall logistics requirements and the requirements of individual shipments.

In addition to the freight profile, we look at competitors and the market conditions in order to understand which offering might fit the client’s profile and how the price and conditions compare with others.

Based on the logistics profile and the market situation, a strategy can be developed to optimise freight and distribution logistics. Often, a strategy is developed that exploits optimisation levers using competition or a deepening of collaboration with suppliers. The most common levers of freight forwarding and distribution logistics tenders are described later in this article.

 

Step 2: Realisation of the strategy and opportunities

 

The goal of the realisation phase is to reach agreements with suppliers that achieve the prescribed goals in terms of freight costs, service level, and quality, and to make distribution logistics transparently measurable and contractually regulated.

The path to this goal depends on the strategy selected and is reliant to a large extent on the company's own negotiating position and the market’s offerings. In most cases, a situation of relatively high supplier competition is found, that enables a tender through competitive bidding. However, in the case of very specific logistics requirements, deepening the partnership with a few suppliers may be the best option.

In both cases, it is important to use the identified optimisation levers as arguments during negotiations or as pivots for improving a partnership. In addition to the supply-side levers resulting from competition or mutual dependency, it is also important to embed the demand-side levers in these discussions so that they become part of the agreement. These include, above all, changes in service levels, new weights or volumes, or opportunities to optimise internal processes (e.g. time slot specifications at the loading ramp, etc.).

The result of the implementation phase should be an agreement that is specific to the logistics profile, includes all logistical and pricing conditions, and makes the achieved goals contractually binding and, above all, measurable during the term of the agreement. The measurability and contractual regulation of non-compliance are among the most frequent mistakes made in the tendering of freight and logistics distribution.

 

Step 3: Implementation and contract governance

 

Once suppliers for future freight and distribution logistics services have been selected and an agreement reached, the next step is to sign the contractual agreement. Our advice is to keep to one standard contract if possible and use it for all service providers in the area. Often contracts leave out fundamental aspects, so here are the most important points that are often overlooked:

Contracts should address all freight cost elements in detail. For this purpose, it is helpful to review freight cost via a TCO analysis to check whether all of the elements are contained and regulated in the contract. In addition to all the freight cost elements, the required quality, lead times, and service levels are often not sufficiently regulated. This also includes response times for complaints, for error declaration, or for information transfer.

In addition to the contractual specification of these and other aspects, it is crucial to establish regulations that take effect as soon as the specifications are not met or are exceeded. Good contracts have a bonus/malus system. This helps to both incentivise the freight forwarder or distributor and to compensate the company in the event of non-compliance. In general, good contracts are also characterised by the coverage and regulation of the most common and most threatening risks.

In order to check performance quality and compliance, and make it the focus of supplier management, it is also necessary in the contract and implementation phase to regulate and put in place meaningful KPIs, and to enable the information flow to support these KPIs effectively.

Imagine that you have negotiated and agreed favourable terms and conditions, but the service provider knowingly or unknowingly acts outside of the conditions, so that your actual freight costs or the quality of the service you paid for do not correspond with your expectations. You would not be alone in this; many companies experience such problems. In order to prevent this, we make sure that a functioning KPI measurement and control system and the necessary contractual provisions are already agreed upon in the discussions and negotiations with the freight forwarders. In the implementation phase, it is advisable to involve employees from the IT or data management department and to ensure the implementation of the KPI system together with the logistics department.

The KPI system incentivises the service providers, helps you manage and control the suppliers, and thus improves the costs and quality of your supply chain.

 

Which optimisation levers and strategies are available?

 

Depending on your current situation and your goals for tendering freight forwarding and distribution logistics, there are a variety of different optimisation levers and strategies available. We take a look at some of them in the following section.

Various transport options are available to ship freight, products, or materials from A to B. Whether by air, sea, road, or rail, each of the transport modes has its advantages and its raison d'être.

For many companies, we observe that the chosen mode of transport is not optimal, resulting in higher costs or faster availability than necessary. Products and goods, even if procured from the same source, do not have to use the same transport mode. We recommend selecting the transport mode on the basis of defined decision criteria for each order and making this decision transparent and easy to evaluate. Companies tend to order goods too quickly, in too small or large quantities, or all through the same transport mode. In a strategic optimisation initiative, it is important to ensure that all options are evaluated, agreed upon, and implemented in a clear, measurable, and controllable manner.

Recent events have also shown the importance of having available transport mode options at hand in case of an emergency or unforeseeable interruptions like the Suez Canal blockage in 2021.

Another optimisation lever is the transport size and container type, which, to some extent, can influence or exclude transport modes.

Ordered quantities depend not only on inventory policies and demand requirements, but also on the extent to which buyers and logistics specialists are encouraged to consider volume discounts or storage costs. A decision on order quantities and transport sizes should ideally be based on a consideration of all influencing factors: storage costs, demand quantities, lead times, quantity discounts, transport costs.

In a strategic optimisation initiative, the most sensible options must be identified, analysed, and made available, and the options and alternatives made clear. Unfortunately, trucks ordered as FTL that drive from A to B with considerable spare capacity or half-filled containers due to poor space allocation can be observed time and again in practice.

Identifying the options and making the consequences transparent, negotiating and agreeing the alternatives, and making this process measurable and controllable are the levers for reducing costs and optimising capacity.

Particularly in parcel shipping, there exists very complex pricing models, which differ per provider, making them difficult to compare. In order to make the best decision during negotiations and when deciding on the best service provider for a specific delivery or freight shipment, it is important to describe the annual freight requirements through weight, volume, and the required service level, and to combine this with the costs incurred, thus obtaining a total cost breakdown.

A good basis of data and the analytical skills to make the offers comparable are required to achieve the right conditions through changed ordering behaviour and, above all, successful negotiation.

As a consequence, prices in the most common areas of the matrix are often unknowingly poorly negotiated, which has a large impact on the total freight cost.

In many procurement and distribution logistics networks, we find opportunities in the over-specification of the service mode or a suboptimal choice of Incoterm. A common reason is that clients are not aware of the options, lack cost transparency, or act under a false sense of urgency.

Incoterms also allow some suppliers to make their prices less transparent. In some situations it is a good idea to organise the transport yourself and/or to separate this price markup in the negotiation.

In our projects we take note of the processes, responsibilities, and information available when making transport decisions, identify and analyse the alternatives, and include these in the negotiations and supplier selection process, so that the optimal – and also necessary – service modes and Incoterms are chosen in the future.

To what extent can digitalisation help when tendering freight forwarding and distribution logistics?

 

Digital solutions can help throughout all the different phases of optimising freight forwarding and distribution logistics tenders. It helps data collection and processing enormously when logistics performance data is permanently compiled and managed in a structured manner. Professional service providers often collect data points along each process step and can provide this data to their clients via data interfaces. For smaller suppliers or more specialised logistics providers, there are also many ways to capture, collect, and later analyse data through their own systems or applications. The most important thing is that the data is collected reliably and comprehensively and stored in a structured way so that it can be easily analysed and evaluated. With the right analysis tools, significant opportunities open up not only for improved daily operational control, but also in data analysis within optimisation projects, strategy formulation initiatives, and tenders for freight forwarding and distribution logistics.

There are also numerous applications that help with the search for, selection of, and negotiation with service providers. Particularly effective is the use of trading centres, where spare freight or delivery capacities can be obtained at short notice. Due to the high competition, especially in sea freight or in the freight forwarding sector, excellent left-over capacity is often allocated here. This is particularly suitable as a strategy for small, irregular requirements, to reduce freight costs, or to cover peak loads.

In the day-to-day management of freight shipping and distribution logistics, transport management software solutions are the obvious choice. These systems facilitate scheduling, can provide additional customer service through delivery tracking, and help measure the agreed KPIs and control the supplier.

In addition to the solutions mentioned, there are numerous specific use cases and applications that can be appropriate in specific circumstances. You can read more about what to consider when selecting and implementing the right digital solution in our Digital Supply Chain section.


  

Conclusion and Outlook for freight forwarding and distribution logistics tendering

 

In the context of the ever-increasing outsourcing of logistics to third-party providers, logistics commissioning, improved internal coordination, the available freight options and conditions are becoming increasingly important. Freight costs should be optimised, risks minimised, and service and quality increased. The impact on customer satisfaction and the company's bottom line can be enormous. This is one reason why many logistics specialists make over-cautious decisions, often unknowingly to the detriment of the optimum. Transparency and control are thus becoming crucial.

In order to optimise freight forwarding and distribution logistics and in order to agree upon the optimisation measures with suppliers, the following elements are required: the identification of the potentials, an implementation strategy and expertise in negotiation. A thorough and well-executed tender can generate such benefits and thus add significant value.

OCM offers comprehensive support in the design and implementation of your freight forwarding and distribution logistics tenders. In doing so, we ensure freight cost reduction, a direct impact on EBITDA, and the fulfillment of your logistical requirements and goals.

In addition, we can also combine our proven approach with the digitalisation or strategic alignment of your supply chain network with our product modules Digital Supply Chain & Logistics, or Supply Chain Network Optimisation.

In our wide range of SCM & Logistics modules, you will also find additional services to support you in optimising your costs, availability, or quality across your supply chain.

We would be happy to present our approach and modules in this regard or discuss concrete solution approaches based on your challenges.

Contact

LinkedinXing
Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

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