Existing supplier versus going to tender. Is the grass always greener on the other side? Changing suppliers is always a balance between benefit and risk.
Management time is valuable, so when thinking about the procurement of logistics services, it’s always worth considering what value the process will deliver against the effort involved and the barriers that might exist.
We have all received lots of advice over the years about why it may make sense to outsource our logistics operations, but not much about the costs and challenges of the procurement process itself. We usually learn, sometimes painfully, by experience. So a few tips may not come amiss
Companies have many reasons to run procurement exercises ranging from concerns about poor service and high costs to the impact of changes in fast-moving market-places. Periodic tendering services keeps companies abreast of changes in the market-place. However, if they are carried out too often without change, then it can undermine confidence in the market and reduce opportunities for service and/or cost improvement.
Embarking on a big procurement exercise for outsourced logistics services is never straightforward, as supply chain touches all aspects of a company’s business. Therefore, some consideration of the procurement process and likely outcomes will always be worthwhile before deciding whether to go ahead or not.
Here is a ‘rule of thumb’ checklist of a few key issues at these critical ‘to tender or not to tender’ decision points.
1) Contracts – do you have any contractual obligations or clauses that would prevent you from moving now or in the future? It sounds obvious, but we know of many cases where a 3-6-month project has been undertaken without an incumbent involved, only to find there was a 12-month notice period!
2) Data – do you have good data and a level of detailed knowledge about what is on offer and a baseline for analysis? Without this, how can you measure savings and show a level of professionalism to the market from which you are hoping to get the best results? There is a huge risk that ‘fag packet’ calculations end up with burnt out and unsustainable solutions that will damage your business performance.
3) Organisation – are you working within an organisation that is generally willing to change? Tendering business which you know will not change (even if a potential saving is available) is generally not a good idea. You will run the risk of losing credibility in the marketplace and this will ultimately undermine your ability to get the best pricing. Hence, it is best that you understand all the motivating factors behind launching a procurement exercise and making sure everyone is on the same page before commencing any action. There has been many a procurement project with a superb business case on paper which the organisation itself was unwilling or indeed did not have the actual capability to implement.
4) Competition – very importantly are you likely to get good results from the market? Have you done your research? Is the competition saying the same thing at the same time? Are you being bombarded with phone calls and emails? Are you confident that you are going to get useful results?
So, in summary, if you can move from a contract freely and can go to the market with good data, then you are in a very good place to consider a tender. If, however you struggle with any of these, it may be a good time to keep your professional reputation and dignity and get what you can from your incumbent. At the end of the day, they may well be the best supplier anyway and sourcing with an incumbent will eliminate any business transfer risks. Indeed, a smaller saving with a proven incumbent may well be better than a bigger saving with a new supplier with some significant implementation risks.
Bisham Consulting is an independent supply chain consultancy with a hands-on, practical and highly commercial approach. We have a 30-year history of successful project delivery in the UK, Europe and around the world and only recommend solutions which we are happy to help our clients implement. Have a look at our website www.bishamconsulting.com to see the full range of our services or contact Caren Tomkins on 0044 1628 487000.