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.

 

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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.