Organising tenders in the most effective way isn’t easy, especially when you have specific operational needs. How can you make sure, then, that your tender processes achieve your ultimate supply chain goals? Find out here.
Tenders are a key instrument for companies wanting to streamline their shipping costs and distribute critical operational dependency; indeed, organizing a bidding process allows them to pick from multiple providers, get competitive quotes, and invite new providers onboard. However, they also demand significant time spend and financial investment from both company and carrier. For carriers, for example, answering a tender or bid can cost upwards of $15,000 per tender. Unsurprisingly, not all small local shippers have the capability or resources to comply with such a complicated process. This is exacerbated by the fact that many carriers also do not believe the process will be objective or transparent (as many companies give loyalty to incumbent providers). Therefore, tender acts as a kind of filter that excludes smaller carriers and companies, and means that some tenders receive a very low response. This is a real problem for firms looking to find new providers in specific geographical areas or secure the best prices.
As tenders can be complex and come with limitations, we’ll take a brief look at the pros, cons and how procurement managers can manage tenders to achieve best results. What are the pros and cons of tenders for shippers?
What are the pros and cons of tenders for shippers?
Advantages of tenders
Tenders allow companies to ensure or close fixed-price rates and contracts for entire contract periods, giving them the tranquility of far greater predictability and minimizing their exposure to market price fluctuations. This is particularly crucial for large companies. Tenders also give companies the ability to map out benchmark prices for future services, even ones that may fall outside the scope of the enterprise’s current offering. Through tenders, companies can receive multiple offers from various providers and ultimately gain access to new providers with improved services or reduced rates. Another benefit of tenders is that they establish a simplified supply process - offering several providers for certain routes - and eliminate the need to look for a new provider each time transport is needed. For businesses that are new to tenders, this can help to reduce costs since they can compare, and choose from, multiple providers and enact better long-term planning. Overall, tenders remove the unpredictability of shipping contracts and protect companies from spot market costs.
Disadvantages of tenders
Tenders aren’t all-singing,all-dancing. Besides requiring a significant cost and time investment, tenders in the end result in reciprocal or dual contract agreements involving a commitment to a specific volume of cargo with a certain number of providers. These fixed contracts are not easily broken (at least not without significant costs) in the case, for instance, of price declines. This can cause potentially negative impacts if the company looking to ship cannot meet the originally contracted volumes. This could occur, for example, if the volume of cargo unexpectedly drops or fluctuates. Furthermore, the focus on the price aspect of the tender - inherent to tenders - means that companies rank providers on their short-term cost-competitivity and often forget other valuable features, such as reliability and long-term savings. If companies are introduced to a new carrier through the tender, there is also always the risk that the partnership may not be sustainable.
How can companies manage tenders to achieve the best results?
The right timing
Good timing is key to managing tenders effectively and getting the best deal for your business. Picking the right moment to put out tenders - when the market is stable and when there’s a reduced shipping supply is crucial to achieving the best results long-term. On the other hand, trying to negotiate rates when petroleum prices are increasing, for instance, may not be advisable as quotes will be higher.
The correct level of complexity
Achieving the right level of complexity in the first tender round is very important. Many carriers respond to 10-20 tenders per month and so have limited resources to understand the complexity of each tender. Many companies, therefore, give an automatic advantage to their incumbent providers who already know their operations. In order to avoid an unfair comparison between providers, companies should aim to compile a manageable list of carriers interested in particular operations, and then explain to them their specific operational needs before requesting quotes.
The appropriate amount of carriers
Choosing the right number of carriers from a tender process is a must. Going with a high number may give companies access to highly specialised providers in specific geographical areas. However, opting for a lower number may reduce costs and operational complexity. As such, companies must assess pre-tender how many providers are suitable for their particular operational needs; this will allow them to pick the appropriate number of carriers when the tender process begins.
What about short-term logistics demand that can’t be covered by tenders?
Data analytics, track and trace and other technologies continue to make demand estimations more accurate than ever. However, that doesn’t eliminate the need to account for unexpected short-term demand spikes too, which will continue to present challenges. In fact, with a growing trend towards real-time demand changes, many industries are seeing an increase in demand fluctuations. While tenders can effectively cover predictable volume, they become less efficient when managing these sudden demand increases or changes. This is where the spot providers come in, usually requiring a surcharge of 15-30% on top of the usual rate.
Ontruck, functioning as a flexible substitute to tenders, offers clients spot-pricing capacity without the need to commit to any specific volume of cargo. With both dynamic pricing and customisable loads, Ontruck’s technology gives companies the flexibility they need to navigate short-term fluctuations, with access to a significantly lower spot-rate than usual and without any extra charges. By using innovative tracking tools and, consequently, increasing shipping efficiency and availability, companies can adapt at speed to the ups and downs of today’s fluid, digital world.
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