Request for proposal (RFP) season is upon us as we approach the start of 2021, and with that comes the decision of when shippers should hold an RFP. 2020 has brought a significant amount of disruption to supply chains, making the upcoming RFP process seem like even more of an overwhelming task. Generally, shippers have three options in regards to the cadence of sending out an RFP to their carrier base: quarterly, semi-annually, or annually. Because of this, we’ll talk through the pros and cons of each option in order to determine which makes the most sense for your transportation operations along with a few tips to how to better prepare for your bid.
Evaluating pricing on a quarterly basis ultimately leads to less exposure to volatility in market fluctuations (i.e. – the current environment), however, one of the largest disadvantages is how time consuming the process can be. Time and resources are put into reviewing each submission, therefore, employees in the transportation department aren’t able to focus on their core job duties. This also leads to the inability to build relationships with your carrier base if you’re consistently basing your selections on price versus performance on organizational KPIs.
Many shippers have high vs. low seasons, so one pro to a semi-annual RFP is that seasonality is considered. On the flip side, this can also lead to higher costs and difficulty securing capacity because it takes approximately 1-2 months to determine reliability, and then after running your lanes for 4 months, pricing is already being re-evaluated. Carriers are also more prone to “taking a hit” for a shipper when the relationship is more long-standing, allowing for you to better service your end customer.
When shippers work with the same transportation providers over a long period of time, relationships, volumes, and rates can be leveraged. This also allows for providers to become embedded into the supply chain, leading to increased service and cost savings initiatives. Less clerical work is also apparent because you are only reviewing RFP submissions on an annual basis.
3 Key Tips for Your RFP
1. Have a Detailed Process in Place
In order to keep your RFP process as organized as possible, there are a few key things to consider.
- When to hold the RFP: make sure the timing aligns with your fiscal year calendar. A best practice is to conduct your RFP first, then set your budget.
- Send detailed instructions to all providers: be as thorough as possible in terms of how many rounds to expect, what KPIs are most important to your operations, the mandatory requirements, who to contact with questions, etc.
- Have a realistic timeline: the RFP event should last about 6-8 weeks. Any shorter, and you rush your providers…any longer, and you expose yourself to risk.
2. Know the Market
You can’t select the right providers if you don’t know what current market rates are. This is why it’s important to lean on your strategic relationships. Within the current environment, many shippers have been forced to turn to the spot market to cover freight at significant cost increases over contracted rates. Awarded carriers have faltered and focused their capacity commitments to better-paying spot market opportunities. Strategic providers with high acceptance and service levels will not do this and will support you through thick and thin.
3. Refine Your Carrier Strategy
Holding an RFP is the perfect time to refine your carrier strategy. Depending on your operations, it may make sense to have one key provider or to have multiple providers that all serve a different purpose in your network. However, having too many options creates confusion and spreads your transportation spend too thin. Once your carrier mix has been set, understand how you fit into their organization and set minimum spend thresholds across all providers.
Becoming a Shipper of Choice Takes Time
While your RFP approach is dependent upon the size and complexity of your supply chain, it takes time and an organization-wide commitment to becoming a shipper of choice. Understanding which cadence works best for your operations will become a trial and error process. If you’re looking to improve your RFP strategy and execution, Spot’s Customized Logistics solution may be a good fit for you. Find more information here.