Category Archives: RFX

Six Secrets of Successful Freight Tenders

A recent article over on Canadian Transportation and Logistics on “the five secrets of successful freight tenders” had some really great tips for getting the best bang for your buck that makes the article a must read. However, it missed one very important tip, which is probably why it claims that Freight RFPs are analytically challenging. (This used to be true, but it’s not anymore. If it’s still true in your organization, then your organization is stuck in the middle ages and it’s time to at least step up to the industrial age.)

Before we get to the tip it missed, let’s start with the tips it provided because at least one of these is overlooked on many a project.

  • Sell your freight.
    Provide as much information as possible about your freight requirements. For each product, include transport, storage, volume, and frequency requirements. The more accurate and complete the RFx, the better quote the carrier can give you. Without detailed information, carriers will build in a “risk premium” so they don’t end up with “bad freight” and both parties lose.
  • Provide enough time.
    Without enough time to analyze your requirements and consider the fit, you’ll get a rough bid that won’t be the carrier’s best proposal. Remember that, depending on the time of year, it will likely sit on someone’s desk for a week, then in pricing for another week, before someone gets to it in the third week. If detailed analysis is required by the “number cruncher”, it could take a month to get the best bid.
  • Standardize the accessorial program.
    Variety and complexity of programs can make the analysis of bid responses unnecessarily complex, as you will be trying to compare apples to oranges to potatoes. And while maybe you can force fit compare the first two, the third poses quite a challenge. Create one program with one uniform set of charges that applies to all carriers.
  • Fully analyze rate proposals across the board.
    Typically carriers will give you aggressive discounts on major lanes to lure your business, but keep discounts to minor lanes minimal, or non-existent. As a result, you may pay more for freight overall if you end up shipping more on secondary lanes.
  • Benchmark results
    Freight patterns can change, and the net result is that a new freight schedule expected to save you money costs you more in the end. “Shadow rate” your current shipments using at least your last rates (if not your last two rates) to get a feel for what freight profiles give you the best deal overall.

But most importantly:

  • Use a sourcing package that can handle freight optimization and multi-level freight bids.
    A good strategic sourcing decision optimization platform (as provided by Algorhythm, BravoSolution, CombineNet, Emptoris, Iasta, or Trade Extensions) will not only allow for full analysis of the entire freight bid, but allow for the easy import of multi-level freight bids from excel spreadsheets. More specifically, these modern packages allow a carrier to define (inter)national rates by weight, volume, or distance, and then override these by region, and then by lane. This will allow a carrier to quickly define standard bids for low-volume lanes or lanes that they are not interested in and focus in on the lanes that fit their network and that they want to aggressively bid on. A carrier can bid on a 10,000 lane global sourcing project in a couple of hours. This decreases response time and increases bid quality.

The Control Provided by e-Sourcing is Only an Illusion – YOU HAVE NO CONTROL!

A recent post on one of the lesser known sourcing blogs indicated that, due to the lack of economic upturn in most of the developed world, maybe now is the time to finally try reverse auctions. The rationale, quotes from a CEO and his team that watched their first reverse auction that indicated that it was simple, powerful, easy to follow, effective, and, most importantly, if you read between the lines, gave them an illusion of control over the process and the results.

This, and some of the messaging coming from a few of the smaller e-Sourcing providers, is scaring me. I fear that adopters may believe that adopting this technology may give them some control. Well, as this recent article over on Chief Executive on why you should embrace tomorrow’s strategies clearly points out, you have NO control! You can manage the process, but you have no control over the outcomes. Why? For starters

  • Cartels, cabals, speculators, organized crime, and entire countries are constantly manipulating commodity prices.
    Case in point: China possesses over 90% of many of the rare earth metals used in many technologies (smart phones, batteries, etc.) and when they recently reduced exports, a steep price increase resulted that triggered a costly disruption of delivery of the precious commodities to global business.
  • Disasters are on the rise.
    Industrial, agricultural, and political disasters are increasing in frequency and wiping out production in entire regions. For example, the nuclear meltdown in Japan affected most businesses that rely on a Japanese supplier.
  • Global currency fluctuations, unforeseen credit crises, and economic stagnation are increasingly severe and unpredictably enduring.
    The extreme fluidity in the valuation of imported and exported goods, services, and components is as equally difficult to predict and manage.

No e-RFX or Auction is going to help you regain control over these economic nightmares that you have to deal with on a daily basis. And any provider that’s trying to sell you 1999 e-Sourcing technology to deal with the current economic stagnation doesn’t have a clue. There’s only one way you can even hope to adapt to the constantly changing reality, and that is through the adoption of a supply management platform with advanced data analytics capability. You have to constantly monitor, react, adapt, predict, plan for what-if, monitor, react, and adapt again. This requires extensive data acquisition, mapping, transformation, and analysis that only a real analytics solution, with advanced (spend) analysis, optimization, simulation, and reporting is going to provide. Don’t get fooled. All auction platforms give you in this day in age is a false sense of security. Sometimes an auction is the right way to go, but, most of the time, an auction (on its own), is not the answer.

Tips on OJEU Notice Drafting for EU Public Procurement Bodies

In the EU, if you are a Public Procurement body, then, for procurements over the relevant EU threshold, you have to issue an OJEU notice, which will be placed in the Official Journal of the European Communities. This notice, which informs the public on the progress of an official competitive procurement, typically takes the form of a Prior Information Notice (PIN), Contract Notice, Contract Award Notice, or a Cancellation Notice. Each notice must meet certain requirements in addition to meeting the needs of the organization. The OGC site provides suggested content for the Contract Notice, as well as a fitness for purpose checklist, but not much advice on actual drafting.

A recent article over on SupplyManagement.com provides some good pointers on “how to draft a clear, concise notice that will leave no room for challenges” that anyone involved in EU public procurement should at least scan as challenges can significantly delay projects while costing a considerable amount of public dollars.

Some of the good pieces of advice it contains include:

  • if the length or scope of the contract may be extended during award, say so specifically in the notice (as this can be a grounds for all participants to challenge an award),
  • use clear language — SI agrees with Dick Locke (who has an entire state on his side), who did some blogging on international contracting, and recommends language that can be clearly understood by a high school student,
  • shortlisting must be specified as this is another basis for bidders to challenge an award,
  • make sure the contact person can be reached and, finally,
  • specify a realistic timeframe. If you take too long, it opens up the opportunity for legal challenges from suppliers who didn’t even bid because they might have had they known the process was going to take longer.

To Maximize Value, Don’t Overlook Tail Spend

A recent article in the Sourcing Interests Group Newsletter on “understanding tail-spend management” noted that while ROI for tail spend categories will generally be lower than for core categories, those companies that keep their eye on the efficiency/effectiveness equation and approach tail-spend intelligently can still find significant savings that make the effort worth while. So how does an organization properly approach tail spend, which:

  • rarely includes direct materials
  • contains a disproportionately high percentage of spend from the furthest-flung subsidiaries
  • contains suppliers that no one in procurement has heard of
  • contains large percentages of non-compliance and maverick spend

Intelligently. And iteratively. Data must constantly be reviewed in the light of changing business requirements to determine the best course of action using the following process:

  1. Spend Analysis
    Focus in on the tail-spend data and figure out what is being bought, from whom, where, and for how much compared to market value.
  2. Filtering
    Focus on commodities that can be reclassified into a category that will have enough spend to be worthwhile.
  3. Sourcing Strategy
    Once the category with the biggest opportunity has been identified, determine the right sourcing approach. If a sourcing project is the right approach, accelerate it with standardized templates, RFX, and/or auctions.
  4. Spot Buy
    If the right strategy is to spot-buy in a weak market, then aggregate demand across the organization and spot-buy through e-RFX or automated auctions.
  5. P2P
    And, regardless of the right sourcing strategy, drive as much spend onto technology platforms, like P-cards, so that it can be tracked and analyzed.

And, most importantly,

  • use procurement technology
  • simplify processes and increase controls
  • establish resources and manage performance

For Successful e-Sourcing, Put the Supplier First

An article in a recent SIG Newsletter on “eSourcing from the Supplier’s Perspective: Improving Bid Submissions and Event Outcomes”, that was contributed by Denali (who deliver) made a couple of very good points if you want a successful eSourcing event. These points can be succinctly summarized as “design the event from the suppliers’ perspective”. If it doesn’t work for the supplier, it isn’t going to work for you.

As the article states, while many benefits are usually touted to the supplier to get their participation in an eSourcing event, at best, the supplier typically only realizes two benefits: fair(er) competition and an easy(ier) quote process. As a result, the supplier gets discouraged by the whole process and, if the supplier does not win a (significant) award, the supplier is unlikely to participate in future events.

Basically, you have to avoid “the reality chain” that is repeated over and over again as more and more companies hop on the eSourcing bandwagon unprepared for the journey ahead. In “the reality chain”

  1. Supplier begins with little or no knowledge
  2. Supplier reaches out, but receives no guidance on requirements or evaluation criteria
  3. Supplier submits a bid that does not meet the buyer’s need
  4. Supplier receives no feedback as to why
  5. Supplier is discouraged

As a result, not only is the buyer’s event only moderately successful at best, but the buyer’s potential supply base for future eSourcing events has shrunk. However, if the buyer had considered what suppliers want and supplied:

  • detailed RFX requirements
  • post-bid feedback
  • well thought-out RFX
  • more stakeholder communication
  • opportunity to provide alternative solutions
  • evaluation criteria

Even if the supplier lost, the supplier would be encouraged by the process (since the supplier would know why the lost and what they need to improve next time) and the buyer would not only have a successful event, but lay the foundation for successful events for years to come. In other words, if the buyer designs the event from the suppliers’ perspective, success is much more likely.

For more details on how to achieve the level of success required, check out “eSourcing from the Supplier’s Perspective: Improving Bid Submissions and Event Outcomes”.