Collaboration is defined as: To work together on a project or mission whereby information and ideas are openly shared so as to produce an optimal situation or outcome.
If you are not using your Request for Proposal (RFP) process to collaborate with select vendors, you are minimizing the potential benefits of the exercise.
Obviously, there is a wide range of RFPs as they relate to transportation. The more simple versions are, in many cases, developed as commodity based truckload lane rate requests. The primary emphasis is on lowest cost as the transportation value proposition is also low and based on simply locking in some level of capacity and rate structure for a fixed amount of time. However, there are also many RFPs that are of a much more complicated and detailed basis.
One of the primary objectives of an RFP is to fairly and accurately compare rates – the proverbial “apples to apples” axiom. In many cases, we see RFPs reduced to format the pricing component as an easy comparison, which may overlook a tremendous amount of undiscovered value.
Some shippers are taking a different approach and producing many more benefits than just the lowest cost. Challenge yourself to think about your RFP as a discovery process, as well as a rate solicitation process.
Vendors are now much more in tune with a wider range of areas that can provide value in the relationship. Emerging technologies are not only providing shipment data, but can provide business intelligence used by other departments within your organization. For example, rather than an allocation approach to transportation costs on a per mile basis, you may be able to provide actual transportation costs to a particular customer’s location by any unit of measure. Additionally, this information may be used by the sales group in formulating pricing strategies up to and including ROI calculations on developing and expanding into new markets. Electronic signature capture may accelerate the invoicing process and pick up additional days of cash flow. The possibilities are endless. A creative solution with multiple value streams is rarely developed through an RFP process with minimal give and take, data clarification, and most importantly, valuable face-to-face time.
Another major consideration in the RFP process is that little time, if any, is spent developing a detailed problem definition. Yet, problem definition is imperative to promote and identify additional value streams over and above costs savings.
To expand the concept a bit further, many RFPs are well-written and spell out exactly what the shipper thinks it needs. Herein lies the problem. These RFPs are based on basic assumptions:
1. The shipper knows exactly what is available in the market.
2. The shipper knows exactly what it needs.
This may be a flawed approach as the shipper may not be fully aware of newly emerging technology, market dynamics, or the ability to look at a the RFP requirements with a broader mindset. It also does not take into consideration the leveraging of vendor infrastructure and customer overlap.
At a recent conference, a large high-end retailer reviewed a transportation related initiative it had undertaken. The retailer approached the problem quite differently than most. Although the team did a fair job identifying the problem, they were not 100% confident that they properly defined the problem.
They initiated a vendor selection process based on a number of criteria with the final solution not being one of them. They choose a provider based on the vendor’s people, experience, skill set, capabilities, culture and desire to be involved.
After they selected the vendor, they jointly went through the problem identification process. What they found out was the problem was much different than they initially thought. They leveraged their relationship with their new provider to challenge them, think of different approaches and design a solution they never dreamed was possible.
They reduced costs much more than originally projected, which not only impacted profit margins, but increased shareholder value as well. Additionally, the implemented changes had a positive impact on many other departments (and budgets!) in terms of business intelligence, accelerated cash flows, market pricing and increased customer service levels. Had a vendor been selected based on the initial RFP which detailed a required solution, the results would have been mediocre at best.
Last, but certainly not least, companies do business with people they know and trust. The only way to incorporate this valuable piece of the puzzle into the process is to get to know a few select vendors well. A strong cultural fit is the key component that can be the determining factor of the success of the relationship. Do not underestimate this very important aspect of the relationship.
Spending time to know a few select vendors will be time well spent. If the RFP process is used correctly, it can provide great additional value to pure costs savings.
By Dave Edwards
SVP Business Development, Cardinal Logistics Management