Analyse before tendering
Several very large manufacturers operate dedicated vehicles for customer delivery, claiming that they have 'critical mass' and can cut out the third-party logistic supplier's (3PLs) profit margin by doing their own thing. One I came across recently had justified continuation of the dedicated fleet on the grounds of reliability and cost. It had benchmarked costs by asking two of the very few remaining major 3PLs to quote for all the customer delivery business - but not for factory clearance. The processor's business consisted of 100% full loads for factory clearance, 70% full loads to the major multiples, 20% mid-sized orders to wholesalers and 10% very small orders to other channels, which accounted for a high proportion of consignments.
In fact this firm had two separate businesses: one for very small orders and 'the rest'. The rest was OK to approach on the basis of mainly dedicated vehicles. It had six and sometimes seven days per week usage and some return loads - not bad, but not as many return loads as the best 3PLs would have achieved.
What it really needed to do was to ask 3PLs to quote separately for the two businesses. Had it thrown in factory clearance for the original 'large order' quote, that part of its business would have achieved highly competitive quotes.
The same 3PLs that could have competed for the large order work were unable to offer the levels of order consolidation needed to be truly competitive on small order delivery. Their quotes against the original invitation to tender were therefore too high and adversely impacted the overall competitiveness of the total bid that spanned large and small orders.
The tendering process should have analysed the business needs by consignment size and approached a wider 3PL audience consisting of full-load specialists on one hand and small-order consolidators on the other.
The outcome may well have favoured a change in the mix of dedicated, semi-dedicated and multi-user operations.
Tim Knowles is partner at supply chain consultancy TKA.
