Managing the Cost of Your Outsourced Logistics

Most companies just re-tender their current outsourced Logistics & Warehouse operations at the end of the contract term, which often does not yield the full cost and service benefits and opportunities offered by an effective tender process and does not sufficiently challenge the highly competitive market of Logistics Service Providers (LSPs).

Many also wrongly assume that it is an easy process by simply putting what they already do out to tender, to LSPs they already know of and choosing the best fit provider in terms of their overall capability and cost. However, this does not always provide for a tailored solution to specifically fit your business needs.

, In reality, the market place and service capabilities of the LSPs will probably have changed over the current contract term and our experience shows that just re-tendering the same operation can provide cost savings in the region of 8 to10% of annual spend but that the potential savings are far greater.

Experience has proven that through evaluation of current and future logistics requirements and subsequent development of a more bespoke service requirement specification, whilst maintaining tight control of the tender process; much greater savings can be achieved.

The team of Specialist Logistics and Warehousing Consultants at The Supply Chain Consulting Group has managed and developed a number of Logistics and Distribution tenders  from the development of the scope of operations; through PTQ (Pre-Tender Qualification) and ITT (Invitation to Tender) processes to final response evaluation and supporting commercial negotiations, which in some cases have yielded savings of between 20 and 30% on existing annual logistics costs.

These tenders have been a mixture of Global, European and UK based Multi-modal Distribution logistics, warehousing and freight tenders across the Automotive, Utilities, Internet & High Street Retail, and Food Sectors.

Maximising the benefits through detailed scoping

The whole tender process should start with a review of current supply chain strategy, identifying areas for process improvement and cost reduction which will impact on Logistics infrastructure and service requirements. The tender scope written from the outcomes of the review ensures an improved operation is tendered, not just a cheaper version of the existing one. There are often additional benefits in other areas of the Supply Chain such as reduced WIP and inventory savings as the logistics and distribution lead-times (and therefore days within the Supply Chain) are reduced through more careful planning.

Next ensure the right companies are notified and that they can take part in the tender process, it need not be a “best-kept secret”. Ensuring that as many LSPs  as possible are able to register their interest in bidding for the contract will provide you with a better chance of finding the right outsourced solution for your business.

Utilising the media avenues available today will generate a high volume of interest, but do not be put off as this can be managed quite easily utilising a predominantly automated process in the initial response stage; as the following case study example demonstrates.

Managing the tender process

From the outset the clients’ key objectives from the tender were positive and concise and due to the complexity of the integrated Global logistics and supply chain requirements a detailed and partly “scientific evaluation” approach to the PTQ and ITT parts of the tender process were required.

To ensure that the widest possible review of providers could be undertaken the tender opportunity was advertised on selected websites and published by selected industry publications and journals, as well as emailing the already comprehensive list of LSPs on our own database.

A closing date for submission of interest was given and approximately 80 LSPs responded via email as requested. A detailed timetable for the whole tender process (which was rigidly adhered to) including submission dates for PTQ, ITT and any associated questions was given to all interested parties. Once they had reviewed the initial overview of the scope of operations 36 of the LSPs who registered interest actually responded, which by default had enabled us to discount over 50% of respondents.

The PTQ document and associated questionnaire (both in spreadsheet format) were developed by the consultant / client project team taking into account the key areas of specific importance to the client and a predominantly automated scoring template was developed to give an initial indication of suitability of response.

The final scoring of the 36 PTQ responses were studied, evaluated and compared. The following key selection criteria and automated scoring template at the PTQ stage were weighted as follows:

  • Completeness of submission – (10%)
  • Financial probity – (15%)
  • Capability Match – (35%)
  • Business & Cultural fit – (20%)
  • Proven quality of service – (20%)

The automated scoring in this case provided a very clear top ten LSPs when the results were reviewed and evaluated in more detail. The shortlist of ten was subsequently invited to participate in the next stage of the tender process by responding to the ITT.

The ITT document took a more rigorous and detailed approach to ensuring compliance with the clients’ specific requirements, including the completion of detailed logistics service pricing matrices and tariff templates per transit route.   The key selection criteria at the ITT stage were:

  • Current State Pricing for comparison purposes
  • Innovation and Supply Chain Optimisation
  • Future State – Total Cost of Operation based upon 2010 volume projections
  • SLA’s, KPI’s & Service
  • Global and Local Key Account Management structure
  • IT system capabilities

Delivering the right results

The ITT responses were studied, evaluated and compared in a programme of consultant / client project team workshops.  A shortlist of 3 LSPs was invited to present their capabilities, clarify their cost and service proposals and produce a Global implementation plan. This resulted in the elimination of one provider and more detailed workshop meetings between the remaining 2 LSPs and the consultant / client project team to discuss in detail all elements of the specific service offerings to meet the clients’ requirements.

The whole process from initial supply chain review, scope development, PTQ & ITT management to negotiation stage with 2 LSPs had been successfully completed within 12 weeks from start to finish.

Lessons to be Learned

What this particular tender made me realise is that is more difficult now than ever to select the perfect partner just by assuming you know who is the most suitable. This is due to a number of factors, including the ability of some of the smaller LSPs being able to compete admirably in the International logistics arena and give the top Global LSPs some real competition.

The major Logistics providers cannot afford to be complacent just because of their size. One of the main reasons for this is the growth in strategic alliances between smaller companies around the world creating almost seamless Intercontinental multi-modal networks and end to end supply chain solutions. These are not just well-managed sub-contract operations but are established partnerships working on a standard set of operating procedures and through a central IT system creating a single customer interface with local representation.

In addition the willingness and ability of the smaller provider networks to offer a bespoke solution tailored to suit the client’s specific requirements from the outset, compared to the all encompassing “standard” service initially offered by some of the larger LSPs can be more attractive to the client at the all important early stages of selection.

An initial “we are the biggest and therefore the best” standard response at the PTQ stage can quite easily exclude the Global LSP from the next stage of the tender process but for the wrong reasons. In reality most LSPs whatever their size will tailor their solution to the client as they get further along the tender process, but it is how they present themselves at the early stages of selection which is important and all LSPs should be more sensitive to this.

What the bigger LSPs can often offer to their advantage is economies of scale and therefore lower operational costs and should get this message across whilst clearly identifying how it will benefit the client and meet their specific needs.

The message to companies looking to tender their logistics operations however big or small, local or International is do not cut corners, do not assume you know who the best LSP will be for your business, and do not underestimate the value of a thorough tendering process.

The message to all LSPs – whatever your size or capabilities, is that you cannot afford to underestimate how your initial response appears to a client company when they are looking for the perfect partner –  as first impressions really do count.


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Supply Chain and Logistics Specialists

Call us on +44(0) 1926 430 883​

Supply chain and Logistics Specialists highly experienced in all aspects of Supply Chain and Logistics Operations,
Distribution Network Strategy, Warehousing Operations, e-commerce Logistics and Warehouse and Distribution Centre Design.