Have you ever considered that you may not be getting the most out of your transportation freight bid? Or worse, have you ever been part of a transportation freight bid that went wrong?
You’ve spent countless hours, preparing data, over-communicating with carriers, analyzing results and running scenarios, only to have a significant portion of your awards rejected.
Or perhaps you’ve made it past the awards but find that carriers are significantly less prepared for onboarding than you thought they were. Or maybe you are running a bid for the first time.
You may be asking yourself, “Is it possible to run a painless transportation freight bid?”
A well thought out procurement process is critical to executing an organization’s transportation management strategy, but sometimes even the most seasoned veterans have difficulties carrying out an effective bid.
Here are 7 things to think about when running your next bid to simplify the process:
1. Know your goals & the macro environment
Before deciding to execute a bid event, be sure to spend some time understanding the current state of your transportation solution. Ask yourself:
- What is working well versus what needs improvement?
- What are the goals of the bid?
- Do you want to increase capacity, improve performance, and/or reduce costs? What is the highest priority?
- How will the bid address business needs and drive value?
These questions need to be addressed before getting started to create concrete objectives and help the team align on the direction of the bid event.
It also helps to consider your procurement event as a portfolio.
Your lanes and volumes are not only the backbone of your logistics network, but they are also levers you can pull to drive down operational costs.
Making sure you understand the macro environment, which in some instances—like in late 2022—can encounter spot market prices that are, on average, significantly lower than contracted rates.
In response, it can be a strategic advantage to reserve a certain percentage of your volume for spot rates (within your risk tolerance, of course) to cash in on these market-wide dynamics.
2. What’s your strategy around incumbents?
When identifying which carriers to invite to the bid event, the first group that should be considered is incumbent carriers. Ideally, coming into the bid process your organization will already have a well thought out carrier evaluation framework and accompanying metrics to assess carrier performance.
This typically includes metrics such as on-time percentages, tender reject rates, invoicing accuracy, freight claims percentages, etc. These performance indicators will be key in assessing the current landscape of your incumbents.
"Your lanes and volumes are not only the backbone of your logistics network, but they are also levers you can pull to drive down operational costs."
It is also a good practice to come into the process with an understanding of which carriers your organization has a strong working relationship with and be able classify if a carrier is truly a strategic partner—or is simply a transactional player that is potentially more replaceable.
A framework that might be valuable not just for the bid, but for the continuous evaluation of carriers is to assign them tiers (for example, Tiers 1, 2, & 3), representing vendors that you wish to grow, maintain, or reduce.
Having these high-level classifications will help inform which carriers should be invited and help downstream decisions around the amount of volume to award each one.
You will also want to examine the frequency of your bid events.
While "mini-bids" carry many distinct advantages—such as allowing you to stay nimble to volatile and inconsistent market conditions and frequent opportunities for network expansion—it's important to consider impacts to strategic partners.
Ultimately, procurement is a relationship-based business and putting a vital carrier's volume out to market too frequently runs the risk of jeopardizing that relationship.
Although challenging, it's necessary to strike a balance between bid frequency and relationship management.
3. Know your history… but also the market
To evaluate the success of the bid, you need to be able to quantify if you’ve met your goals. This requires that you establish a baseline for comparison, plus identify industry-specific market benchmarks, if possible.
The easiest option here is to consider historical data. Ideally, your organization is already tracking average rates per lane, and this information should be represented by the same data used when scoping and estimating the freight/volume for your transportation bid.
These historical benchmarks should be used throughout the process and are critical for estimating the potential value of the bid.
If you want to get a complete picture, market benchmarks should be included along with any internal historical baselines.
You not only want to compare the potential rates to past performance within the organization, but you also want to understand how the bid stacks up against the broader market.
It is entirely possible that you could end up with a bid that is strong against historical benchmarks but weak against the market. This informs you that you are likely not targeting the correct providers for that section of your network and that are better opportunities in the marketplace.
"To evaluate the success of the bid, you need to be able to quantify if you’ve met your goals."
4. Provide the correct operational information
First and foremost, it is imperative to define the scope of your transportation network. Answering the questions below is a good starting point for making sure that the correct operational information is included in the bid event.
- Do you ship domestic, international or both?
- Do you do any multi-stop truckload or is the freight currently point to point only?
- Do you utilize brokers today? Are you willing to consider new brokers?
- Is the volume of freight relatively consistent, or does it have large seasonal fluctuation?
- Other considerations unique to the business? For example, is there hazmat?
- What modes of transportation are utilized?
- Do you already know the lanes you would like to include in the bid?
- Do you need to source for an inbound or outbound network, or both?
- Approximately how many lanes (origin and destination pairs) need to be bid?
- How many shipping (outbound) locations are there?
- How many destination (inbound) locations are there?
In addition, a thorough understanding of the required equipment and overview of the relevant facilities is necessary to get a complete picture of the network.
A transportation solution is not just a set of lanes and numbers in a spreadsheet, and whatever can be done to explain the operational reality is incredibly valuable to include as part of the process. This information is critical for making the results of the bid actionable and for executing a smooth implementation process.
5. Set a concrete timeline & communication plan
The single greatest contributor to failure or friction is underestimating the time and effort it takes to execute an effective bid. The more upfront planning performed, the smoother the entire process will be.
Most importantly, you need to put together a rock-solid schedule, with respect to realistic time estimates and key communication points.
Here is a high-level sample timeline of the important steps and how long you can expect each to typically take:
- Data Collection & Vendor Identification (1 – 2 weeks)
- Pre-bid Notification & Registration (1 week)
- Bid Event (2 weeks)
- Results Collection & Scenario Analysis (2 – 4 weeks)
- Awards Notification & Response Collection (1 week)
Overall, these are just general estimates, and the actual amount of time necessary will be heavily dependent on the scope of the bid, the organization’s technical maturity, and the number of resources that can be dedicated to the event.
Considering these elements, the timeline and communication plan need to be thoroughly thought about beforehand, or you greatly increase the risk of a failed bid event.
6. Don’t get overwhelmed by the results
Depending on the size of your network and the number of carriers invited, it can be quite easy to end up with a significant amount of data to review.
Ideally, your procurement team will have personnel with experience handling large amounts of data, but if not, don’t worry. There are strategies that can help you effectively manage and analyze the data to make informed decisions.
The best approach is to structure the analysis results like a funnel, first assess at a high-level, then move to lower levels as you progress.
Start off by getting a broad understanding of who performed best, reflect on the goals of your bid, and understand your constraints.
- Are there strategic incumbents that need to stay involved?
- What kind of resources are available for onboarding, especially if you plan to award lanes to a large number of new carriers?
- Is there a maximum number of new carriers you’d consider?
Consider your constraints and goals, narrow the field to just your top options, reduce your data set, and work down to the lane-level.
By breaking down the results into smaller components and iteratively reviewing, the analysis becomes considerably more manageable.
7. Expect the unexpected & always have a backup plan
Often no matter how much time and care went into preparation for a bid event, you are going to be faced with unexpected circumstances. The best mitigation for unknowns is to stay flexible and understand that some surprises are inevitable.
Consider building an extra week or two into your timeline just to account for these risks. In the case of unanticipated award rejections, it helps to acknowledge the common root causes.
- Insufficient capacity – Carrier networks may change after the initial response, such as losing backhaul moves or other resources.
- Unforeseen circumstances – Carrier may provide incorrect pricing at the time of bidding.
- Lack of interest – Carrier may lose interest, particularly if the event has taken a long time to complete.
- Unreasonable expectations – Shipper's expectations could be unrealistic, or the carrier feels that they will not be able to meet them.
- Unattractive terms – Terms of the award, such as the payment rate or the length of the haul, are not attractive to the carrier.
- Lack of trust – Carrier does not trust the shipper or feels that the shipper has a history of not honoring payment terms.
In the end, the way the carrier perceives the award might not align with your expectations—and in that scenario, it makes sense to know what your secondary and tertiary options are.
Conclusion
The transportation freight bid process can be complex and challenging. However, by understanding the current state of your transportation solution, setting clear goals—as well as considering the macro environment and potential for automation—you can simplify the process and increase the likelihood of a successful bid.
To further enhance your chances of success, JBF Consulting has experience partnering with both shippers and transportation bid software vendors to improve the procurement process and generate better bid results.
Meet the Author
Kyle Spataro is a Functional Consultant at JBF Consulting, a leader in supply chain execution strategy and systems integration for logistics-intensive companies of every size and any industry. Kyle specializes in business data visualization to improve operations, requirement gathering and reporting, data analysis, database management, and agile methodologies.
About JBF Consulting
Since 2003, we’ve been helping shippers of all sizes and across many industries select, implement and squeeze as much value as possible out of their logistics systems. We speak your language — not consultant-speak – and we get to know you. Our leadership team has over 70 years of logistics and TMS implementation experience. Because we operate in a niche — we’re not all things to all people — our team members have a very specialized skill set: logistics operations experience + transportation technology + communication and problem-solving skills + a bunch of other cool stuff.
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