Freight RFQs are complex, and almost every procurement project is unique in its design. Depending on the mode of transport and the type of product being shipped, the offer matrix can contain individual price components and different quantity structures and units, along with additional information that can make comparisons difficult. However, almost all freight RFQs have one thing in common: Prices and information in the offer matrices are typically line-based queries by destination.
With an expressive bidding approach, however, service providers can submit individualized offers with cross-line discounts and additional information. Suppliers can use this new flexibility to integrate effects from enhanced capacity utilization or to optimize the routes of certain allocation scenarios in a price calculation. The more options you give to your service providers for optimization, the more you will profit from their efficiency increases!
Expressive Bidding: More information included in the RFQ
With an expressive bid process, you will receive information during the bidding phase that is usually reserved for negotiation with the service provider after the RFQ has closed. In traditional freight procurement processes, results from downstream negotiations can have a retroactive effect on the projected award scenario. A single subsequent capacity restriction of a service provider can throw the complete results of an evaluation into question. Each round of negotiations with a service provider, in turn, influences the negotiation results that have already been concluded with other providers. In the worst case, you go into countless renegotiations or accept some inaccuracy in determining the ideal allocation scenario. With expressive bidding, the problem is solved by querying discounts and capacities during the actual bidding phase.
However, the more information you request within an RFQ, the more complex the analysis of the results will turn out. Without technical support, it is simply impossible to evaluate line-based pricing with cross-line discounts and capacity constraints. Take a look at the following example of a simple FTL RFQ with three submitted offers for only five lanes in two regions to see how complex the calculation of an award scenario can be:
In the offer matrix shown above, three freight forwarders have listed their offers per lane under “offered prices.” In addition, under “Lane bundle dependent discounts,” the service providers have bundled lanes into individual packages and specified a discount they grant in case that the complete bundle is allocated to them. Under “Offered capacities,” the service providers have indicated how many units they can provide per week for the lanes in the regions Germany (DE) and France (FR).
In the “best per lane scenario” above, the lanes are allocated to the carriers according to the best offer. Additional information on discounts and capacities is not included here. In the example, the lanes 1 and 2 would be 100% awarded to “Carrier B.” Lanes 3, 4 and 5 would be 100% awarded to “Carrier A.”
The allocation shown above takes into account the required capacities specified by the shipper (stated in the offer matrix under “Required capacity”) and the capacities offered by the freight forwarders (indicated in the offer matrix under “Offered capacities”). In our simple example, this step could have been done manually. However, the example clearly shows that the calculation of an allocation scenario without considering capacities may lead to impractical results. In our simple example, it also becomes more complex in mathematical terms if individual lane bundles are to be taken into account:
The result of our small freight RFQ as shown above clearly shows the influence of capacity and discounts on the award decision. While in the “Best per lane scenario,” three lanes would be awarded to “Carrier A,” this carrier would not be awarded any business when considering the discounts and capacities.
The simple example also gives an idea of the complexity of a cross-line scenario calculation. The query of additional information within a RFQ only makes sense if the corresponding technology for the automated evaluation of the results is available. In Ticontract Tendering, the award scenarios described above can be created and evaluated with just a few clicks.
With a sophisticated e-sourcing tool, expressive bidding projects can be easily created and evaluated automatically. In addition to leaner and more transparent processes, the progressive procurement approach offers even more significant benefits.
5 benefits of the expressive bidding approach to freight RFQs
# 1: Synergies through individual lane bundling
We know the situation from the spot market: In the event of missing connecting loads or to avoid empty runs, freight forwarders offer a shipment partially below cost. In the case of inflexible freight RFQs, on the other hand, service providers hardly have the opportunity to individually combine the tendered loads or to optimize them according to existing routes, which makes it difficult for providers to price in possible synergies in their offers.
An expressive bid process enables service providers to group different lanes into individual lane bundles and specify a discount for each lane bundle. If the provider receives the allocation for a complete bundle, the quoted discount applies. In this way, forwarders can use the tendered loads to plan efficient routes or to combine these across customers with existing lanes. Part of the resulting synergies can be passed on to the shipper via the discounts to increase the chance of a complete allotment.
# 2: Economies of scale due to volume-based discounts
Since the service providers do not know at the time of the offer submission how much freight volume they will ultimately receive, allocation of their fixed costs can be inaccurate, making investment decisions difficult. Freight forwarders will therefore prudently insure a hedge against a small allotment. Therefore potential economies of scale can only be priced in the offers to a limited extent.
Individual discounts in an expressive bid event give providers the ability to incorporate economies of scale into their offers in a realistic and risk-free manner. In doing so, the service providers are left with the definition of the threshold values as well as the amount of the discount. This eliminates the need to price in a hedge against low allotments. By referring to the actual order volume, the prices quoted can be calculated more realistically and accurately.
# 3: Optimal distribution of capacities
From a geographical point of view, freight forwarders are often able to handle most of the lanes in a freight RFQ. Since the quantities in a freight RFQ are classically line-based per lane, the capacities of the providers usually relate only to this specific lane. For each single lane, most providers have sufficient capacity available. If one summarizes the quantities of several relations of a RFQ, on the other hand, freight forwarders often reach their limits. In addition, freight forwarders realistically have different capacities at different locations. In order to arrive at realistic results when evaluating supra-regional freight RFQs, different capacity limits must be taken into account for different regions.
With an expressive bidding approach, you request the maximum capacities of the service providers already in the RFQ. Depending on the structure of the RFQ, it may be useful to query several values for different areas (for example, regions, locations, vehicle types). Service providers can continue to issue awards without capacity restrictions in their offers. In the automated evaluation, the available capacities of the freight forwarders are then optimally distributed to the relations on which the providers have submitted the best prices. The individual strengths and capacities of the freight forwarders are automatically taken into account.
# 4: Additional flexibility and more quotes through alternative offers
Many freight RFQs already contain detailed, shipper-defined specifications for load handling. But for the service providers, it may be better to offer an alternative, such as a different mode of transport or vehicle type. Especially in the current context of limited transportation resources, consider giving your service providers more flexibility in terms of offer design.
Allowing alternative offers will give providers more opportunities for custom optimization and will provide additional, often less expensive, quotations. Given the appropriate technology, this will not require much extra work. In Ticontract Tendering, for example, the alternative offers are automatically integrated into the evaluation. As a rule, both parties benefit from the flexibility gained: Freight forwarders can optimize the utilization of alternative means of transport and shippers receive better and more complete offers.
# 5: Self-empowerment thanks to e-sourcing technology
For a long time, expressive bidding could only be implemented within complex consulting projects and made sense for correspondingly extensive RFQs. Thanks to modern technologies, the digital trend toward self-empowerment also applies here. With a modern e-sourcing tool, expressive bid events can be implemented by experienced freight purchasers independently and without much extra work. Harvest this low-hanging fruit!
If you would like to learn more about expressive bidding on freight RFQs and the Ticontract Tendering platform, register here for a free live demo!