4 Ways to Get the Most from Your RFPs
A few weeks ago we wrote that, prior to renegotiating your carrier agreement, a good way to learn what the current market rates are and how you could improve your existing rates is to send out a request for proposal (RFP).
But, we hear you say, the RFP process is time-consuming and its ROI is questionable, so is it really necessary and can it really save you money?
The answer to both questions is both yes and no.
In many circumstances, the answer is yes on both counts. But a poorly crafted RFP can do more harm than good.
So here are four ways to make sure the RFP is a valuable tool in optimizing your shipping rates.
Get clear on the purpose of the RFP
Shippers use RFPs for a number of good reasons, most commonly to protect themselves from rate hikes, capacity issues, and other market changes. The logic behind this is that without the RFP, you wouldn’t know how a shipper’s current rates compared to market rates. Going one step further, a shipper without any formal rate agreements is subject to the volatility of the spot-rate market with no ability to accurately budget or control shipping costs.
With this base understanding of why you’re sending out an RFP, you can now set about crafting a useful one and using it in the best way.
Understand that input quality = output quality
As we wrote a few weeks ago, with RFPs the quality of the output depends on the quality of the input (aka garbage in, garbage out). This applies in two key areas:
- Including all the necessary information for the carrier to craft a proposal that meets your logistics needs.
- Asking the right questions to make sure you get the information from the carrier that you need to make the best decision.
If either of these elements is weak or missing, the RFP could end up being more harmful than useful.
As step one, to give the carriers the information they need, the RFP should include background on your company and the types of products sold; shipping methods, customer locations, and service types; expected terms; special delivery requirements for all origins and consignees; and your shipping history, with as much detail as possible.
The second critical step is to prepare the right questions to be answered by the carrier. Carriers differ greatly, so your questions need to give each carrier the leeway to present its advantages — the important and unique details of what it can offer.
This follows on from the first step in that the details you have provided about your business and shipping will guide the carriers in presenting the ways they can best meet your needs.
Open the way for conversation
If you have crafted the RFP well, it will open the way for a conversation that allows the carrier to understand your requirements and expectations.
Carriers are used to being evaluated on rates alone, so by providing thorough information and asking well-thought-out questions in the RFP, you’re showing that you’re looking beyond price to a longer term mutually beneficial relationship.
This then provides an opportunity for the carrier to offer feedback and thoughts on more strategic components of your logistics operation that can lead to an even better dialogue on efficiency and cost reduction.
Begin at the beginning: Request information (RFI)
One way to get even better results from an RFP is to start with a request for information (RFI). As the name implies, the purpose of an RFI is to gather information on the carrier’s experience, surcharges, routes, lanes, quality of delivery, etc.
With this overall sense of the carrier’s business, you can weed out those that may not be able to service your needs, and then send RFPs, following the guidelines above, to the strong candidates.
RFPs are useful in carrier sourcing and negotiation. But like any tool, used poorly, they’ll do a bad job. For RFPs to be truly beneficial takes effort and careful planning. Use an RFP to provide and gather critical information specific to your logistics needs, and as a way to open the door to collaboration that benefits both shipper and carrier.