If you’re in the import and distribution business then your international freight, import handling, warehousing and domestic transportation costs are a significant business expense – regularly benchmarking your logistics costs can improve profitability without having to impact on service.
There are generally two options that you can pursue in order to benchmark your logistics costs and potentially unlock significant savings.
- You can either re-negotiate with your incumbent service provider – this is probably the most efficient option but it may not always be the most appropriate or
- You can undertake a formal tender process by requesting quotes from other suitable service providers – this is a more time-consuming approach but in most cases will deliver much greater savings
This article outlines what I believe to be the 10 key elements of a successful tender process and can be used as a guide if you choose to undertake the process yourself.
The guidelines are based on my experience implementing this process to deliver many millions of dollars of savings in many different types of businesses.
- Ensure that the service providers selected to participate in the tender are suitable for the type of business that you are in
- Clearly define the scope of the services that the service providers will be required to provide.
- Use a rates template so that all participants submit their rates in a format that can be readily compared
- Provide historical transaction data that allows the participants to understand the volume of work that they will be required to perform
- Develop a cost model that utilizes the historical transaction data to calculate and compare what the actual cost of the service would be based on the rates that have been provided
- Determine which “non cost based” criteria are important to the overall decision-making process and include these criteria as part of the evaluation process.
- Insist that the participants provide customer references and the references are checked thoroughly prior to any final decision
- Enter into a formal agreement that clearly defines the terms and conditions of the agreement, the services to be provided, the applicable rates, the service level expectations and the key performance indicators to be measured throughout the relationship
- Assign the appropriate resources to the project and adopt a project management approach to both the tender process and the tasks associated with transitioning to a new service provider
- Ensure that a regular and disciplined process of managing the service provider’s performance is established and maintained throughout relationship