Do you know what you are asking for and is it articulated clearly? Companies that can do this well can offer an attractive proposition to potential bidders and therefore get the best results. There are some best practice principles to apply when drafting a Tender document or Request for Proposal (RFP), irrespective of the commodity or service being sourced.
Sourcing logistics services from a third party (a 3PL) should follow basic procurement principles but will also include some nuances. Engaging and contracting with a 3PL is not the same as buying widgets; you are sourcing what could be an expensive and complex solution and are putting in the foundations of a potentially long-term professional partnership. It is similar to sourcing any other strategic service in that it requires specific conditions to ensure success.
Engaging with 3PLs
The supply market for logistics services is developing rapidly, partly because of innovations in the use of technology, both in the warehouse and in the modes of transport. If you think you know who will provide the best solution for you before you issue your RFP, you are probably wrong. Take a bit more time on such a high-value contract and investigate what your options are, i.e. who can do this best. Issuing a Request for Information (RFI), also known as an Expression of Interest, will establish both who wants this business and who has the capability. This document is basically a limited information pack telling potential providers what you are looking for, why you are looking for it and how your sourcing process will work.
An RFI is an open invitation for many suppliers to present their credentials and express their intention to respond to your forthcoming RFP. A well-structured RFI process allows you to limit the number of RFP recipients to potential winners. The responses to your RFP will be of higher quality and your evaluation process will be most efficient. If a potential supplier thinks you are just benchmarking against your current operation and have no intention of changing, your request will be ignored.
Sharing your information in the RFP
One regular complaint by suppliers is that they are expected to provide a fully thought-out solution but are working on your RFP in the dark, with minimum information. The more data you can share about your current operations and your limited resources the better their bid will be. They need to know at least the last 12 months of activity, i.e. inventory levels, facility locations, number and size of deliveries and receipts and staffing levels. This applies whether it is currently an in-house operation or is outsourced. This sharing of data should be protected by a Non-Disclosure Agreement (NDA) which is signed by both parties.
Data helps bidders in their design process and gives them the opportunity to focus on areas where they feel they can add value. Another accepted best practice is to provide the participants with a basic guide to how you plan to select the successful bidder, i.e. say that your evaluation will be based on price, the services offered, operational capacity, financial probity and customer support offered.
Allow a generous RFP response time
Another common complaint from suppliers is that companies never allow enough time for quality bids to be developed and submitted. Be realistic about how long it will take them to design a solution for you. 3PLs do not have business development teams sitting idle waiting for your RFP and most are selective about which offers they are prepared to invest the time in. Include a supplier site visit to your facilities and offer as much supporting information as possible to all present.
Any request that is vague or is not a compelling proposition will be ignored. Established and leading 3PL firms will consider many factors when making the “Bid vs No-Bid” decision. When bidding they look at strategic fit, who else is bidding, length of contact, evaluation criteria and especially, value to be derived from the relationship.
Designing logistics operations can be a complex process, requiring highly detailed and advanced analysis. The more involved your logistics needs are, the more time you should allow. Anything less than 4 weeks response time is unworkable, up to 12 weeks may be required for a complex solution or an optimisation project. Make sure the bidding process is explained and that the due date is clearly stated.
Keep an open mind
Your RFP should allow leeway for suppliers to offer alternative solutions to your requirements even if you think you know what the solution should be.
3PLs are not all built the same; they have different facilities and assets, various approaches to business and unique ways of operating. You may have decided upon your preferred commercial arrangements and account management but there could be a better way. Integration of your computer systems should be high on your list, there are I.T. solutions and custom software available that your supplier already may have in place that could be cost effective for you.
Shortlisting and the selection process
Ideally, the shortlist should have no less than three qualified bidders and no more than five. Two is not enough as one can drop out, six is too many to manage and the top three will get all the focus. “Qualified” means that all shortlisted bidders meet all your selection criteria.
Meet with their top management and proposed account manager at visits to their sites. This is the time to do your due diligence and to ask all those difficult questions about their implementation plan, mutually acceptable Key Performance Indicators (KPIs) and contract terms and conditions. The supplier best-suited to your requirements will emerge, often based on cultural fit after all other criteria have been satisfied.
What can go wrong?
Many RFPs for 3PL services are poorly structured and will not deliver the expected result. Take more time in the preparation. Here are the most common errors:
- Not being clear about the need and being short on detail in the scope. This is usually due to lack of up-front end-user involvement.
- Not providing templates for pricing and other data for analysis causing problems in comparing apples-with-apples when evaluating
- Not being familiar with the global supply market and failing to invite the most suitable suppliers to bid
- Requesting irrelevant information that will not be used in decision making
- Making last minute adjustments, addenda and due date changes to the RFP causing confusion
Avoid these pitfalls!
SCCG can help you to optimise your supply chain operations. We provide capacity and productivity solutions in fast changing business environments.
Our directors are experienced logistics consultants who have worked closely with clients in a range of sectors and countries to improve or expand their warehouse and distribution centre operations.