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​

How to tender last mile transport logistics professionally and successfully

 

Transport costs incurred through external transport suppliers, courier services, and other logistics service providers on the last mile account for a total cost share of well over 10% in many companies. Therefore, transport costs are one of the decisive factors for a company’s success. Nevertheless, due to the fundamental contribution of last mile transport logistics to value creation, many companies focus exclusively on the fact that transport logistics works. Its cost is too often pushed into the background.

In addition to customer satisfaction and delivery capability, the added value of good transport logistics is primarily determined by the efficient use of resources. Above all, it is a matter of organising vehicles, drivers, and routes so as to ensure the productivity and efficiency of all resources is as high as possible.

This is made considerably more difficult by the fact that the cost base is subject to numerous fluctuation factors (market supply, order volumes and duration, labour market, fuel, driver wages, etc.). The constant fluctuations in the cost base, combined with the focus on keeping up with operational processing, mean that in many companies competitive market-prices are not achieved and are reviewed far too infrequently.

To that end, companies have to obtain continuous transparency of the market in order to ensure that the last mile transport functions properly and, at the same time, that the corporate result is cost-efficient. In addition to the conditions, challenges increasingly coming to the fore are the supplier’s operational structure, the avoidance of risks, and the ability to find and retain reliable transport logistics service providers and drivers.

In the context of carrying out effective and successful transport tenders on the last mile, the following questions are important:

  • Which challenges should you address with your next last mile transport tender?
  • Which aspects of a last mile transport tender create the greatest added value?
  • How do you reduce shipment costs without running the risk of losing quality and reliability?

 


 

Which challenges should you address with your next last mile transport tender?

 

An effective last mile transport tender reduces shipment costs to the competitive market rate. At the same time, it helps to induce collaboration with last mile service providers in such a way that optimum costs are achieved and resources on both sides are optimally utilised.

To achieve this, and to counteract undesired dependencies, the most suitable service providers and drivers available on the market for your company should be identified and included in the tender process. In the preparation of the transport tender, dependencies on individual service providers, insolvency risks, and unneeded sub-structures should be identified and avoided by including qualified alternative service providers in the tender.

To be effective on the last mile, a transport tender can also counter the rising costs of service providers by creating synergies through partnerships. This helps existing contractors avoid solvency issues and means your company circumvents rising shipment costs.

In addition, a new standard can be created and implemented efficiently through the holistic tendering of all transports in order to uniformly optimise risks, processes, technological standards, and quality.

An effective last mile transport tender specific to the requirements of your company allows you to achieve the best price and conditions available on the market for your desired quality and reliability, and helps to optimise the utilisation of resources by aligning and cooperating with your transport logistics service providers.

 

Which aspects of a transport tender create the greatest added value?


Aspect 1: Strategy and pricing model

 

The transport tendering strategy that suits your company and your transport logistics operations helps you to align your requirements, processes, and conditions in such a way that your transport logistics objectives are met and the last mile service providers avoid incurring unnecessary costs.

 

Elements & forms of the service provider structure
Elements & forms of the service provider structure

 

Which supplier structure, size, and level of professionalisation optimises costs and quality? Often there are sub-sub-structures among the service providers. If the cost-benefit justifies such a structure and it is needed, this can make sense. In many cases, however, sub-sub-structures hide margins that do not justify the service provided.

A suitable pricing model can help optimise your costs and risks. In many cases, however, pricing models only serve to increase the risk of the last mile service provider or prevent efficient resource utilisation. This leads to risk and under-utilised capacity being priced elsewhere. In most cases, this makes the overall operation significantly more inefficient and therefore more expensive than what the intention of the pricing model was.

 

Aspect 2: Competition and suitable service providers in the transport tender

 

Healthy competition and suitable service providers are the prerequisites for every successful tender. If neither exists, you should refrain from tendering on the last mile and, if necessary, optimise your transport logistics by improving collaboration through partnership, developing a service provider, or insourcing.

But before you stop reading – of course competition and suitable service providers do exist in last mile transport logistics. The problem for most companies, however, is to identify and retain them, and also to maintain regular contact with transport suppliers who have not been contracted. Whereas in the past the market conditions were those of a pure demand market, in which service providers flocked to their potential clients, today the conditions have shifted and companies have to invest in the search for service providers in order to identify a pool of qualified last mile service providers for tender.

Through ongoing research we maintain a national and international database of transport suppliers and logistics service providers, which we can include in the tenders we execute and thus ensure sufficient competition.

 

Aspect 3: Effective negotiation and negotiation methodology

 

Professional negotiation and negotiation methodology are essential for the success of a transport tender. They work to validate prices, conditions, and service offerings, and give bidders the opportunity to submit their best possible bids. In addition, fact-based feedback and strategic negotiation play a major role in receiving good effort-based or cost-based offers instead of general, market-based prices.

Successful, large-scale transportation tenders require excellent methodology, deep analytical skills, as well as negotiation efficacy and experience. Otherwise, effort, quality or the results suffer.

 

How to reduce transport costs without the risk of losing quality and reliability?

 

In order to ensure the minimum level of quality expected for your company, the tender should include testing of quality and suitability as well as precisely formulated and sufficiently detailed minimum requirements. In addition to the formal possibilities of an audit, care should be taken to agree on and to contractually stipulate remuneration modules for quality and performance.

Excellent opportunities to sustainably maintain or improve the performance of service providers are offered, for example, through supplier management or the use of bespoke digital training schemes. With the help of these methods, you can ensure that the desired quality on the last mile is achieved and maintained and can thus become a prerequisite for negotiating and reducing costs.

In addition to the benefits, there are also risks associated with working with last mile transport suppliers. A certain degree of dependency, contractual commitments, or, in particular, the aforementioned quality, which suppliers are supposed to ensure for your customers, generate potential risks for your business. In order to prevent these risks, we recommend that you identify the risks that arise from working with service providers in general, but also specifically from the addition of new, as yet unknown service providers, and that you take measures to safeguard against them.

 

 OCM Driver Academy to train & retain drivers
OCM Driver Academy to train & retain drivers

 

Through suitable contracts, contingency plans for the mapped routes, piecemeal implementation, and regular quality control, you can keep a close eye on the risks and, if necessary, intervene quickly before the damage is done.

One of the most effective measures to maintain reliability and quality after a tender is completed is to ensure sufficient motivation and satisfaction of the transport suppliers. Contractually, this can mean integrating bonus and malus systems, or creating close relationships, involving and motivating the service providers, especially the drivers, on a personal level. In our Transport Partner Management project module, especially designed for last mile transport, we offer a broad range of measures to create a long-term partnership with service providers and drivers.

 

The following practical examples illustrate typical challenges & approaches to finding solutions on the last mile

 

Our approach to transport tendering is successful across industries as it relates to the universal forces regarding the relationship between transport logistics supplier and client. What makes good results outstanding, however, is an understanding of the specific circumstances of the company, the industry, and historical activity. The various approaches to a solution are therefore as diverse as transport logistics itself – in the following section, we describe typical client circumstances and challenges, as well as practical solutions.

What is the optimal transport supplier target structure on the last mile? Should small subcontractors with a partially high risk of drop-out be used for reasons of cost? Or should you rely on a large forwarder, who requires less support and has a lower individual risk of drop-out, but also has a higher systemic risk and comes at a higher cost?

How suitable are suppliers in order to jointly achieve your strategic goals, such as synergy networks or the introduction of new regulations or software?

Often, out of loyalty, perhaps convenience, or to reduce risk of failure, companies use large scale transport logistics providers for all transport services. These then cover a large part of the procurement volume. Oftentimes in those cases the logistics team then praise how professional these large-scale providers are in terms of appearance and service. Unfortunately, these providers often only act as an intermediary and pass on the transport orders to smaller subcontractors on a one-to-one basis. This mostly remains uncovered, as they know how to position and present themselves well.

The question companies should ask in these situations is: do we get real added value for the benefit of which we lose control and oversight of the executing subcontractors and pay higher costs? Every substructure skims margin, so the added value should be carefully examined.

In our projects, we invest time in analysing existing structures and processes and identify opportunities through modified structures in line with your corporate objectives. Depending on the aims and the circumstances, we work with you to develop a multi-stage plan to achieve your goals on the last mile. In a multi-stage professionalisation strategy, cost optimisation, with the associated flexible pricing structure is often a sensible first step that enables the implementation of further optimisation initiatives, for example transport network optimisation. A major advantage of using an “invitation to tender” phase is that the decision on the service provider structure does not have to be made until the phase is completed. Until then the options can be discussed and worked out in more detail in collaboration with the transport logistics providers. Even in the case of entrenched price structures due to historically grown supplier structures, changes in the supplier mix can be a negotiating tool to loosen up commercial terms.

In transportation procurement projects on the last mile, one of the major challenges is to identify suitable suppliers to match the defined target structure. For example, when companies operate their own last mile network, this is often done externally via small scale transport suppliers due to flexibility. These suppliers are oftentimes small transport enterpreneurs, some of whom still do daily tours themselves and, in most cases, do not have an internet presence. Due to the increasing demand for logistics, these carriers are becoming a highly sought-after resource. Identifying a sufficient number of carriers that deliver a reliable service under adequate conditions is a task that needs to be addressed. A shortage of the qualified carriers described above can result in price increases, quality degradation, and fluctuation. Either high prices have to be paid for average quality or the quality drops off sharply at lower costs.

In our projects, we support customers in setting up a sustainable supplier management that includes processes for establishing and maintaining a pool of service providers. In addition, we have a database that we continually update and through which we can bring in enough suitable contractors in the tender process. Through this database, the OCM network, and our methods for identifying new service providers, always a sufficient number of suitable service providers are qualified for the tender process.


 

Conclusion on last mile transport logistics tenders

 

Due to the constant changes in the cost base as well as in supply and demand, companies must regularly tender last mile transport logistics to ensure that it is not purchased above the market price, thereby unnecessarily reducing the company's profit margin.

The realisation of high-quality, structured transport tenders is both an efficient and effective means to achieve cost optimisation at the desired quality level and to collaborate with suppliers in a sustainable manner. Companies with a high proportion of transport costs have the opportunity to achieve significant and sustainable improvements in their bottom line through a successful transport tender.

With the right strategy and implementation, companies mitigate risks instead of taking them on, and, at the same time, can make transport logistics future-proof.

OCM offers comprehensive support in designing and realising your customised last mile transport logistics tender and integrating it with your supply chain strategy or digitalisation initiatives.

We combine our proven approach to procurement negotiations with logistics and supply chain expertise to achieve competitive market price levels while realising increased efficiencies in transport logistics and in collaboration with transportation service providers through last mile transport logistics tenders. We would be happy to present our approach and project 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​

Our project modules at a glance:

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