Part 2 - Setting up the RFQ
In this blog post, we will share some our best practice setting up a freight RFQ. In the previous post, we discussed the freight tender RFQ preparations and the basic building blocks.
Before releasing the RFQ, you might want to send out a pre-qualification RFI (Request For Information) to collect key information about the LSPs. Information, such as company information, employee management, minimum salary, environmental footprint, etc. Basically, how does the potential LSP compare to your corporate policies and hard requirements? Hard requirements are absolute and need to be fulfilled by the LSP to qualify to the RFQ, your “must have” list. Soft requirements, on the other hand, are components that are adding value to the bidding package and will be analyzed in the scenario costs and the optimization reports separately, your “nice to have” list. Let’s move onto the bidding sheet, this is where you collect all the bids from the LSP according to your bid-standard.
How to choose a bidding sheet structure:
Use a bid-sheet structure that is known in the market and one that you are confident you can manage in your analysis. Don’t be too innovative. You risk losing potential bidders. Or worse, you will not contract the service and cost you were expecting due to misunderstandings in the bid process. TenderEasy has built-in bid-sheet templates for all modalities built on best-practice from your peers. Use them as a basis to modify to your requirements.
Other things to consider:
- Support of multiple currencies. Make use of that to keep suppliers cost in the currency it generated. Also, if you want, take out the risk-premium added by the supplier. We made TenderEasy supports multiple currencies because of this reason. For example, in ocean tenders, LSP's can enter their costs in local currencies, and system auto-summarize in your preferred currency used for analysis.
- Take the opportunity to challenge status quo. E.g. if you run a hub and spoke transport solution today. Why not take the opportunity to also ask for end-to-end prices and compare the result. You may be surprised!
- Avoid LSP unique quoting methods. Instead, try to harmonize the data collection by providing well-defined bidding sheets. If you are unsure how the LSP will respond then ask for their typical bidding structure in your RFI and align to the common structure used by your preferred providers. On the other hand, if it is an already existing business, you have the structure from previous contracts. Most LSPs have no issues adjusting to a customer based structure provided it is commonly used.
- Our strongest recommendation is to never separate the service components (e.g. lead-time, frequency etc) from the price proposal. Keep it in the same matrix. This will ensure that you can quantify the cost of your different service components and make informed decisions on value/cost ratio every time. No guesswork or assumptions just hard indisputable facts. After all, you bought the service for these reasons!
Decide on bidding rules:
Avoid possible misunderstandings in the bids from the LSPs. Be clear on how they should quote and what rules are applied to your bid evaluation. Incorporate these rules into your RFQ documentation.
- Approved currencies and the exchange rates applicable for the RFQ process.
- Set your reference point for the fuel index month so that all suppliers start at the same position. Decide if you are going to use your own standard index and formula or allow the LSPs to suggest their own.
- Round-up rules. Do you round up/down and to what level (nearest integer in CBM or kg, or with how many decimals etc)?
- Freight weight rules. How do you convert to freight weight? (e.g. cbm to kg, pallet to kg, load meter to kg).
- Do you apply the break-point calculation rule (for road transport).
Decide on the scenarios you want to run:
Decide what scenarios you want to run and how that data is to be shared internally (perhaps split up business units or product groups) and as feedback to the LSPs.
- Make sure that the bid-sheet supports running your critical scenarios. E.g. incumbent supplier scenario, cherry-pick scenarios (with or without compliance to your soft service components), etc. With TenderEasy, is that the bid-sheet is flexible so new data and logic can be added during the freight tender RFQ process. Even if you do forget during the set-up, don’t worry, it can be amended!
- Set validation levels of supplier input data. The stricter you are, the quicker you can launch into your analytics and you can avoid much of the data that doesn’t add value to the data cleansing supplier bids. Or worse, having to interpret supplier bids as you run out of time which creates all sorts of problems later on for both parties.
- Decide on the naming convention for the RFQ data (to enable easy integration of the data to your other systems). TenderEasy has built-in support to UN/LOCODE and with drop-down lists and keywords, you can manage the bid inputs of the LSPs.
- Historical shipments vs forecast. What perspective should you tender? With TenderEasy you don’t have to choose, you can do both and even combine and change them on the fly as new information is available from your sales and marketing team.
- Think about how you want to share feedback to suppliers and what information you want to share at whichever stage in the process. Also, think about what data from each round you want to store and make available for future comparative analysis. In the end, all these preparations boil down to set up in such a way that you maximize your available time to run your analytics, scenarios and prepare for feedback. Here is where you, the freight procurement professional, bring value to the process.
In our next blog, we will go through freight tender bid analysis and how to provide relevant feedback to RFQ participants.
If this blog raised questions or you're ready to kick off optimized freight procurement, please get in touch.