RFPs (Request for Pricing) in the transportation world are nothing new, but in recent years there have been more and more companies turning to them as a business tool for a multitude of reasons. Below are the basics of what an RFP includes, the pros and cons and whether it may or may not be good for your business purposes.
At its most basic, a shipper or customer requests a transport carrier to give a rate for a particular lane or program of freight. Large RFPs can be the company’s one large program or all of its transportation needs.
Typically there are a few reasons that companies may decide to do an RFP. New business has become available and the company’s incumbents cannot service the new business. The company thinks there’s too much spending on transport and want to verify the market rates they currently have; or they have too many or too few carriers with this being a way to add new carriers or take out carriers that add no value.
- Possible reduction in costs of transportation
- Increase of visibility to carrier list
- Helps with strategic planning for the future
- Introduction to new carriers or carrier capabilities
- Extremely time-consuming
- Potentially costly
- Potential to lose some of your good carrier base
- Sometimes ends up a “race to the bottom” (cheap rates but extremely poor and inconsistent service)
The decision to do an RFP is an important one with the resources that go into it. Should a company decide to move forward with an RFP, below are some things to take into account.
Over simplifying the information
Ensure carriers are given enough information to properly and accurately quote on the business -- omitting details can only lead to unexpected costs and delays. Things such as program dates, shipper and receiver requirements for lumping and appointments and shipping consistency are all things that should be communicated within a RFP. The more information that carriers have the more likely they can provide consistent service and accurate pricing.
RFI (Request for Information) sections
It is important to have an RFI section. This helps to collect information on the carriers bidding, including authorities and insurance. However, there is no need to include lengthy question sections. Some companies ask about the carrier’s five-year business plans and for cash flow reports. Taking an interest in the success of your carriers is a good idea but these requests are a bit extreme. Make sure you know who you are working with and maybe, with some carriers, set up times to meet and have candid discussions about their business if you want to build that kind of in-depth relationship.
Provide accurate data
Giving data on previous business or projections can really increase the potential of a successful RFP. However, when sharing data, it is important to ensure the data is valid and accurate. If there is a lane that shows five loads per week in the data and its turns into five loads per month, this can cause issues with regular coverage and consistent pricing. Some companies choose to give previous data instead of projections as they are actual numbers that carriers can use to infer possible business in the future. Neither of these ways are particularly effective. Just make it known to the carriers which type of data they are working with.
Don’t have endless rounds
Sometimes in an effort to either help carriers be more accurate or in an attempt to try to save even more, companies do multiple-round RFPs. In all honesty, more than two rounds and carriers will become alienated. After a second round the message becomes “We are not seeing the rates we want, regardless of the market rates, we want it lower.” This is not the best way to build successful business partnerships with carriers. Two rounds give carriers an option to adjust rates they feel they may be able to do better on and to suggest possible round-trip programs to the company.
Have you saved?
Companies need not bid every year just because this is what they have always done. If you have not seen any service improvements, cost savings or time savings, don’t do it again. Maybe take a year’s break and see if meetings with carriers can shed light on the transport side of the business. Maybe there is a reason that an RFP is not working for the business. There are a lot of businesses that do RFPs every year like clockwork but have they saved anything significant or seen service improvements regularly? It’s unlikely. Resources are important to the business. Don’t spend them unnecessarily on a tool that may not be working.
In the last five to 10 years, RFPs became quite popular especially amongst larger companies. They believed it was the best way to ensure they are paying fair market rates. However, in today’s context, companies are becoming aware that maybe every year RFPs are a strain on the business and their growing partnerships.
Have you used an RFP in your business? Comment and let me know your thoughts!