The proper development and execution of a Parcel Request for Quotation (RFQ) is extremely important in this era of continued focus on cost containment, ever-growing accessorials and astronomic fuel surcharges. Because of those factors, many companies just dont realize the effect they can have on their pricing with a solid RFQ process. An effective Parcel RFQ is not just putting together a few statements from corporate legal and a few volume numbers on a piece of paper; its a labor-intensive process that requires a sound methodology and a well-thought out execution, capped off with solid negotiation skills.
It Starts with a Plan
A successful Parcel RFQ planning process has two parts: iden-tifying targets and outlining/defining the process itself. Identifying the targets is very simple: to whom do you want to send the RFQ? There are a number of variables here, and it all depends on your business and past experience. Some companies have a sole source model and are happy with the carrier they use and just want to go through a general rate renegotiation, while others want to include all available carriers. Our experience dictates that you always involve the big three (DHL, FedEx and UPS) unless there is a specific business reason for exclusion. Parcel pricing is very complex and has many changing variables; the pricing you got last go-around might be significantly better, or worse, than the pricing you get this time. Regardless of the outcome, its always better to make your decision based on three sets of pricing as opposed to one. Plus, knowledge of talks with the competition could enhance your negotiating position.
When it comes to outlining/defining the process, we break it into five sections:
Data Collection
Parcel Profile Development/Update
Data Analysis
RFQ Development/Management
Negotiation/Implementation
Data Collection
As its name implies, this portion of the RFQ process is fairly straightforward. Best practice dictates you collect, analyze and warehouse your parcel data on a continuous basis. You cant rely on the carrier to give you your data. You should be pulling this from your TMS/Manifesting System and using a parcel auditing company with solid data warehousing and reporting capabilities. Typically, one years worth of data is sufficient to build or update the profile and costing model. However, if the data is available and your business is cyclical, or you just realized or anticipate a change, a longer period could be warranted.
Parcel Profile Development
A profile is essential for any parcel shipper of substance. The profile should be a dynamic model that is updated continuously. The profile consists of a number of data points that identify and make up your package characteristics. While each profile is different, based on the individual business, key components of the profile include analysis and summaries of zone density, seasonality, service level, accessorials and surcharges, international, hundred-weight/multi-weight and dimensional charge.
Data Analysis
This phase consists of populating the costing model with the data from the parcel
profile and the pricing from your existing agreement(s). Other components are best practice observations and a savings opportunity analysis. Best practice analysis typically consists of looking for air versus ground comparisons, address correction review (does it make sense to implement CASS software?) and potential unauthorized shipments, just to name a few.
The savings opportunity analysis is critical not only for identifying possible GAPs in your processes, such as not taking advantage of the Ground Footprint, but also for identifying targets for your negotiation strategy. Do · you have a lot of OS1s with no discount but very little OS2 with a discount? Are you far above your highest revenue discount tier? Do you have a lot of delivery area surcharges (DAS)? All these things should be identified in this analysis and folded into the negotiation strategy.
RFQ Development and Management
Once you have identified your targets, developed or updated your profile and costing model as well as completed your data analysis, the next step is the RFQ Development and Management itself. As mentioned before, corporate policy may dictate certain required elements such as legal statements and supplier diversity requirements, so its best to identify those first. Once thats complete, youre ready to go.
Our experience indicates that more is better in a Parcel RFQ. You really want to create a comprehensive document that acts not only as a road map for the process itself, but gives the bidder a complete overview of your parcel business in order to develop a qualified response. (See the sidebar on page 37 for some suggested headings from a typical enVista Parcel RFQ.)
Of these elements, pricing targets and elements of the parcel profile are critical and warrant further discussion. You will need to understand your data and develop targets for discounts or concessions based on the profile itself. A good way to do this is to develop pricing targets based on the profile. One thing to note when developing these targets is to focus on products and services you use or will be using. If you dont place emphasis in this area, it could be perceived that you are not familiar with your profile, which could diminish your ability to negotiate.
Again, its important that you understand your profile and package characteristics, and the bulk of this information is included in the RFQ. Without it, the respondents will be frustrated and worse, your proposed pricing will reflect this. Its your responsibility to give them this information so you can receive the best overall pricing on the first round based on the data in the RFQ.
Negotiation and Implementation
The last piece of the process is critical. Negotiation is a major part of the process and consists of response analysis, additional round negotiation strategy and final negotiation. A typical negotiation takes at least four rounds, and its important that when you receive your response, you analyze it thoroughly, line it up against your targets and then develop a response or counter if needed.
The cornerstones of a solid parcel RFQ are the availability and familiarity of your data along with the ability to clearly articulate this information in the RFQ. Those cornerstones, coupled with your ability to develop a costing model that clearly identifies the impact of the proposed pricing on your current costs, and your negotiation skills are the keys to your success. Good luck!
Don La France is the Director of Transportation Services for enVista, a leading provider of logistics and transportation cost management services. He can be reached at dlafrance@envistacorp.com.
Sidebar 1:
More is better in a Parcel RFQ you really want to create a comprehensive document that acts not only as a road map for the process itself, but gives the bidder a complete overview of your parcel business in order to develop a qualified response.
Sidebar 2:
Typical Headings in an enVista RFQ
Introduction
RFQ Purpose and Objectives
Project Schedule and Milestones
General Conditions
Bidder Selection Process
Intentions
Confidentiality
Reservations
Rejection of Quotation
Bidder Instructions
Scope of Bid
Parcel Profile
- Distribution Network Overview
- Shipment Volumes
- Seasonality
- Growth
- International
- Special Requirements
Proposal Pricing Targets
- Domestic Incentive Program
- Revenue Tier Incentive Program
- Weight and Zone-Based Incentive Program
- International Incentive Program
- Hundredweight/Multiweight Program
- Same-Day Incentive Program
Accompanying Documentation
Bid Quotation Submittal Instructions
Summary
