Introduction to tender definition
According to the Cambridge Dictionary, tender meaningis "a written or formal offer to supply goods or do a job for an agreedprice". The word is commonly associated with the publicsector, but it is also an important business concept in the transport sector. Here we tell you what tenders are and how they work in the logistics industry.
Public or governmental administrations indeed usetenders as competitions to award public works, projects, or services tocompanies. However, tenders are also auctions in which goods orservices are sold to whoever offers the most money. Or the other way around.Contractors seeking a service advertise it in open competition to choose thelowest price among all bidders.
Traditionally, procuring entities have created thissystem intentionally. This creates a competitive scenario in which bidders donot have access to the bids of other competitors. Whoever sets the lowest pricewins the award. It is known as a "blind auction". It is amethod for contractors seeking the lowest bid. However, low-cost services arenot always a guarantee of quality.
For this reason, there aremore and more tenders where the quality of the service is essential and will bereflected in the price quotation. Thus, a win-win philosophy is generated. Bothparties value each other in commercial terms and achieve mutual benefits.
What is a tender in the freight transport sector?
Tenders in freight transport have a long history.Companies all over the world treat tenders as a basis of their operations. Theyuse this tool to secure massive capacity for their expected volume.
They typically involve lengthy processes that requireupfront investment to set a competitive price and submit a potentially winningproposal. However, companies that organise tenders have realised that this isthe best way to reduce transport costs in the long run.
The tender pricing strategy will be based on the RFQor Request For Quote (RFQ) study. This allows the supplier to set the bid priceat which it is willing to provide the necessary service. However, the RFQ may have a preliminary step known asRequest For Information (RFI).
RFI - Request for information
Companies often use requests for information whenlooking for new suppliers. They want to make sure that only the best suppliersparticipate in tenders. They cannot afford to make a mistake in choosing theright carrier.
That's why they first ask for information such asfinancial data, stability, staff, etc. Sometimes they ask you for a letter explainingwhy they should invite you to their highly valued tenders.
RFQ - Request for quote or tenders
Then there is the request for quotation, often calleda tender. You can award volume for the next 3 months, 6 months, or, morecommonly, 1 year or more.
The RFQ or invitation to tender mainly contains thefollowing information:
- The type of tender.
- The type and subject of the contract.
- Deadlines and timetable for the tender and the awardof the contract.
- Tender price document.
- Preliminary information, specifications andrequirements.
- Procurement regulations.
Once the RFQ has been analysed, the bidder must alsoconsider three elements:
- Direct costs.
- Indirect costs.
- Profit margin.
It is vital for suppliers to have bid pricingstrategies. If the procuring company has the opportunity to choose between moresuppliers and get competitive prices, suppliers should play their cards with awinning strategy.
Also, the supplier participating in the tender shouldhave a well-defined proposal. It must be of high quality and convincing to havethe opportunity to differentiate itself from the competition and demonstratethat it is the best option to provide the service. Your proposal's added and perceived value is alsoimportant, so techniques such as incorporating a detailed implementation plancan bring it closer to success.
Let's take a tender example:
The European textile market leader has invited morethan 600 companies to its tender. Usually, these are the old suppliers, withonly a few new ones who were persistent enough to submit bids.
The rules are general, nothing extraordinary. Thesupplier knows what the volume of each lane is because the tender holderprovides this information:
- 1000 lanes to quote.
- There is a national and an internationalsection.
- Type of equipment, transit time, warning time.
- If there are quotations or not.
- If there is pallet exchange or not.
The shippers are smart. They do the first round tochoose the 2 or 3 best in each line among the 600 suppliers. But before thesecond round, they will do interviews if they are unsure about thesupplier. There may be a third round simply because shippers aregreedy and need to ensure that they have squeezed a "lemon" in eachlane. This is the standard procedure they have always done.
At this point, we come to the final. The suppliers arechosen, the volume is awarded, and the backups and the backups of the backupsare selected.
But... this is not enough. Let us tell you about it.
How do companies protect themselves from a rejection of tenders?
There are many ways.
The main one is to consider the fuel index. If thefuel price goes up, the price in the lane goes up. Another option is to have abackup plan such as the spot option. Shippers must constantly monitor current trends andchanges in the market. If truck demand increases, they must be prepared to havemore rejections in their allotted lanes.
It can be a huge waste of time and money, such asoverpaying spot trucks because we all know that express service is an expensiveservice.
Important factors in transport tenders.
We should mention sustainability because some shipperstend to choose "green" suppliers. For example, giving the option tomove goods by rail or ferry helps to save the planet.
Trucking companies with gas or other cleaner fueltrucks may have more business opportunities from companies that seesustainability as a key value.
But we can all agree on the most critical factor.Price. It almost always prices.
Let's take the Barcelona - Berlin route with 600 loadsa year. It's not a "big" amount, but imagine you have 1000 routes toquote. It is evident that the price here is fundamental.
This is the basics of logistics and why freightforwarding exists. The tenders lower the price because they have securedcapacity in the long term. Therefore, they are resilient to marketchanges. If they overpay one day, they still earn their marginthe next day. Of course, it does not always mean that they deliver on time, butit is important for shippers.
In contrast, transport companies with their own assetsare not as flexible. They cannot afford to miss opportunities that appear inthe market. Therefore, they tend to "reject" loads that are notgood enough.
Tendering systems have processes that can be digitisedto make them more efficient. For this reason, digital platforms and freight exchangesleverage new technologies to take advantage of tenders.
However, E-tennders today are mainly used to competein the spot market. They are an auction-type system that moves away somewhatfrom the traditional bidding of the transport business.
Currently, the model may work for some shippers, butwe know logistics likes to be repetitive.
Tips for a tender manager
To get the most out of tendering operations, werecommend the following tips:
Getting the "when" right is essential.
As we pointed out earlier, tenders are characterisedby long-term contracts under conditions that are usually closed. Therefore, itis best to carry them out in times of stability and a favourable context.
You need solid partners, not the lowest price.Make your calculations
Invite as many suppliers as you want, but ensure youknow what you are looking for. Collaborate and never compromise on quality.Interviewing to find out more information and get to know suppliers is the bestway to understand their business.
Make the guidelines clear from the start.
Make sure you have a clear objective and know yourtarget price. Clearly conveying your requirements will help suppliersunderstand your needs, and you will receive more proposals.
Narrow down the network of suppliers you want toinvolve.
Selection processes can be lengthy and complicatedbecause of the amount of information to be compared to make the right decision.It is preferable to select those you already know or have references, even ifit is a smaller network.
Identify the most difficult lanes.
Study previous competitions and keep the"old" competitions in your archive. You will learn from them.
Tips for quoting if you need to tender a contract.
In short, here are a few tips that will help you getcloser to winning a tender:
Study the invitation to tender correctly.
To participate in a tender in which you will offeryour services, you must know what is being asked for and consider all the requirementsexactly. Ensure you understand the product to be transported, the transit time,and the truck type requirements. If something is unclear, you should ask.
Companies also ask about the daily capacity you canprovide, so you should analyse it before giving a random number. Some customersprefer quotes for just a few lanes, and others like you to quote for allroutes.
Participate in feasible tenders.
You need analytical skills and basic knowledge tounderstand the market. Analyse the competition's bid to be stronger in yourproposal or decide whether it is better to withdraw in time.
Reserve your efforts for those bids where you believeyour company can win or that it fits the application. So, don't waste your timeif you are not sure it will be good for your business or if you think theservice is not consistent with your objectives.
Good tender participation requires extra effort and isonly worth investing in when there is a real opportunity.
Be clear in your proposal and communicate yourvalue well.
Explain the reason for the price thoroughly. Justifyit clearly with the characteristics of your service, your added value and thebenefits you can offer. Also, present a price breakdown verified by your ownsuppliers or subcontractors if you have them. Due to market changes, it isvital to have the most up-to-date information possible.
Along with the price quote, itis very important to highlight the quality of your service and any added valueyou can provide that sets you apart from your competitors. Whether it issomething obvious or just the smallest detail.
Do you need a quotation, or are you looking for loadsfor your trucks?
At Tennders, we are dedicated to the management ofEuropean freight transport. Our mission is to provide the best balance oftechnology and people to create efficient supply chains.
We simplify the way shippers, carriers and brokersconnect. And we increase the visibility of digital and sustainableopportunities.