Managing a Transportation Bid Event
It's that time again. The market has shifted and your current transportation solution is not meeting one or more of your key goals—service, capacity, and/or cost. Or, perhaps your company's strategy has changed and so have your transportation requirements. Either way, you need a better transportation solution.
Chuck Irwin, former director of transportation for Unilever, and current president of e4score.com, a web site that enables supply community collaboration, explains how to manage a transportation bid event to help you locate and implement the highest-value sourcing solution for your needs.
1. Know your current status. Start by defining your current transportation solution's effectiveness. Review key performance indicators and determine which gaps are most critical. Do you want to increase capacity, improve performance, or reduce costs? Having identified the gaps, you can determine the best strategy. A bid event is only one of many options—sometimes the best bid event is no bid event. Renegotiating your existing contracts, or implementing a continuous improvement program with your core carriers—such as reducing volatility to increase capacity—may be a better solution.
2. A bid event is a project, and must be managed accordingly. If you do not have a lot of project management experience or skills on your team, consider retaining a bid event consulting firm. These firms offer data management and analysis tools that can reduce project cycle time and improve the outcome. Talk to other shippers and your carriers about the pros and cons of each option. If you don't think you need specialized data management and analysis tools, it's still a good idea to meet with one or two bid event firms. They will have good suggestions to improve your project, even if you decide to go it alone.
3. Specify and quantify. You must specify exactly what services you want to purchase (lane, volume, volatility, equipment type, performance requirements). Only then will carriers be able to bid with confidence on your requirements. If your data isn't extensive, some data, or your best estimate, is still better than no data. Also, you need to provide the business process requirements that the carrier must satisfy. You can simplify this by creating a standard contract and including it in the bid package, so carriers can begin their legal review before negotiations are complete.
4. Create a Request for Information (RFI). Use an RFI to determine which carriers to invite to the Request for Proposal stage. Invite numerous carriers to the RFI. Include your current carriers and identify new candidates by searching Internet carrier profile databases with your requirements in mind. You must be prepared to award contracts to new carriers, or you risk losing credibility in the marketplace, leaving you limited to your incumbents regardless of your business situation. At this time you should also collect operating documents and check carrier references and financials.
5. Develop a Request for Proposal (RFP). Collect bids for each high-volume lane, preferably using a RFP tool that enables carriers to bid from their perspective (scope, regions, lane bundles) and express their capacity commitments and limitations. Simplify management of low-volume lanes by using a standard state-to-state matrix. When analyzing the lane allocation scenarios, first determine the "low cost" allocation, then impose constraints to create a scenario that allocates lanes to the best carriers for performance and capacity. These "as offered" scenarios define the boundaries of your new sourcing solution.
6. Develop the negotiation strategy. The negotiations will determine the highest-value allocation within these bounds. Set your goals, and determine what you are prepared to offer in exchange. Focus on offerings that create value for the carriers, such as volume commitment or simplification, such as reduced load complexity.
7. Conduct the negotiations. Always use the proposal/counter-proposal approach—respond to an offer to sell with an offer to buy. This negotiating best-practice approach promotes fact-based dialogue, enabling the parties to arrive at the highest-value solution acceptable to both. Immediately document the agreed-upon business arrangement. Hopefully, the carriers began their review of your standard contract before the RFI.
8. Implement the solution. The secret is in the planning. Segment the bid event lanes into groups—by region or ship location usually makes the most sense, but seek feedback from carriers and customers. They may have some specific needs or considerations that should be factored into the transition plan. Execute the plan precisely. Remember the three most important rules: communicate, communicate, communicate.
9. Review stage. Monitor carrier performance and costs. Make sure both parties are meeting contract commitments. Take immediate corrective action if necessary.
10. Constantly review and incorporate feedback from carriers. No solution is ever perfect. Provide your carriers with constant performance feedback—good and bad. When performance is good, reward carriers with something they value. When performance is unacceptable, remind them they committed to certain performance targets. Work with them to identify causes of the failure and implement appropriate corrective action. Never forget that the shipper or receiver might very well be the cause of the failure. Keep an open mind when doing the root cause analysis and be prepared to take action.