Logistics Procurement: It could – and should – be better

Logistics procurement isn’t easy, because logistics isn’t a commodity: it's really a service. So if you use the same approach that serves you well enough for procurement of other line items (like office equipment, components and materials), you’re missing several key elements that are essential for a really successful logistics procurement outcome. But for most procurement teams there hasn’t been an alternative to that approach – until recently.

 

Now, there’s game-changing analytical technology available in a set of built-for-purpose tools that are empowering and easy to wield.


By deploying these tools, and by knowing how to frame the dialogue with logistics providers, you can take your procurement process to a dramatically better outcome.

The 14-step method below describes how to run a ‘best-practice’ logistics procurement process, shows where next-generation tools make a crucial difference, and offers some free templates for you to download.

But first….
Logistics procurement product offering transparent background

How do you know if your logistics procurement is a problem?

These are some of the common indications that a procurement exercise for logistics services isn’t going as well as it should be:

  • We’ve spent six months gathering data for our procurement exercise.
  • I can’t get all the data I need, so the Request For Proposal (RFP) contains a lot of guesstimates and averages.
  • We didn’t track last year’s performance and procurement results, and nobody enforced the contract.
  • We did track it and the actual results didn’t deliver the promised improvements.
  • Some of the carrier RFP responses look good, but we can’t verify their proposals against our data.
  • We’ve been negotiating for a long time.
  • We’ve had a lot of operational teething problems after switching carriers.
  • We tend to stick with incumbent suppliers in our procurement process.
  • We’ve identified potential savings, but our logistics team doesn’t want to make changes.
  • I can’t quantify potential savings with enough accuracy to convince senior management and other stakeholders.

If you recognise any of these, our 14-step guide will show you how to put things right.

To put the guide in context, let’s start with some fundamentals.

Teamwork pays.

A good procurement exercise isn’t about screwing your suppliers down to the last penny. That’s a short term and invariably counter-productive approach. It’s better – and more profitable for your company – to give the supplier what it needs in order to offer you the best service it can.

A transparent relationship with your suppliers is beneficial in the long term. By understanding your business better, the supplier can bring improved value to your negotiations. And it’s incentivised to build a mutually satisfactory relationship.

The stakeholders within your business should also be part of a team approach, so that goals are agreed, interests align, and the outcome is equally valued by all.

Data is power.

Give suppliers the data they need, so they can give you the value you want. Suppliers tend to have more of it than you, so withholding or being coy with with the information you have doesn’t work to your advantage.

If your RFPs are short on data and padded with guesstimates, your suppliers can only respond by hedging to protecting their margins against the uncertainty of dealing with your company.

You unlock the value with full data transparency. Your supplier knows what to expect, and both sides can negotiate with everything on the table.

(7bridges use data-driven procurement to drive savings of more than 30% on logistics costs for our customers!)

Testing builds confidence.

A new contract proposal may look fine on paper. They usually do.

But until you’ve tested its terms in a credible simulation using your company’s traffic data, you can’t be sure. Have you overlooked the impact of possible surcharges? What if 20% of your items are dispatched in overlarge packages? What would be the real cost of the new quick delivery service your company is considering?

Pre-flight testing helps convince your internal stakeholders and decision-makers to go for change and gives you the opportunity to fine-tune contract terms before signing.

Tech tools put you in another league.

The technology is there. Use it to run a data-driven procurement process that’s faster, cheaper and far more accurate.

The range of tools at your disposal give you unprecedented capabilities for:

  • Data collection, collation and harmonisation

  • Supplier proposal testing and scenario simulations

  • Operational optimisation, performance checking and contract enforcement

Now let’s get started with the 14-step guide to optimal logistics procurement.

Phase 1: Groundwork

Step 1

Gather historic data

Collate historic invoice data and current contracts from all your logistics providers. A full year’s supplier invoice data will give you a meaningful picture and a good basis for the next steps.

If you use more than one provider, do the necessary data cleanup to ensure that the data is all in a consistent format.

Why?

Comprehensive, granular data is essential for your understanding of each supplier’s performance and value.

By analysing the data, you can pinpoint the ways in which your providers could give better value, and you’ll negotiate from a position of strength.

Without complete data transparency, your negotiations are severely disadvantaged. The supplier has plenty of data, but you don’t.

How?

It takes a lot of time and resources to collate and harmonise the data. For this reason, shortcuts and compromises are often made. This immediately weakens your negotiating ability.

7bridges offers tools that dramatically accelerate the process and guarantee a full set of accurate data.

➡️ Start by downloading our
 RFI 'Data Request Template', here: 

Step 2 

Audit past performance

Conduct a retrospect audit of all the carrier invoices in your data set, to identify:

  • Incorrect charges (e.g. billed on incorrect weight, incorrect rates and more)

  • Misapplied surcharge costs

  • Charges for failed deliveries

  • Charges for late deliveries

  • Charges applied to a suboptimal rate card

  • Flag invoices with errors and issue credit note requests to the supplier.
Collate the data on SLA infringements.

Why?

An audit of your provider’s invoices yields information that’s valuable in more than one way.

First, it gives you a basis of reclaiming value lost through errors, SLA failures and incorrect charges.

Second, and most importantly, it equips you with specific data to use in procurement negotiations. With comprehensive information on where your providers failed to provide expected service and value, you can push hard for better.

How?

Many organisations find it difficult to cross-reference invoice information with data from supply chain fulfilment records. It’s another area that is often neglected, leading to value leakage in existing contracts.

So: you could do it yourself, or, you could get a tool to do it for you.

For a rapid, automated audit that provides a strong base for your data-driven procurement process, (and a lot more), get the Audit tool from 7bridges, the AI-powered logistics platform. It's free for a historical review of your invoices.

➡️ Get the Audit tool from 7bridges

Step 3

Check for operational improvements

Combine carrier invoice data against order data extracted from your ERP.

Analyse the correlated data to identify where costs and performance could have been optimised by operational improvements.

You’ll discover inefficiencies such as:
  • Incorrect choice of packaging, leading to increased volumetric weight charges

  • Sub-optimal choice of warehouse to dispatch from 

  • Missed opportunities for consolidation

Using this information, identify where and how performance and costs can be improved within your current infrastructure. Quantify the potential gains.

Why?

Process rules are rarely implemented perfectly, and this leads to waste. By identifying savings that could have been made under the terms of existing supplier contracts, you’ll achieve two valuable results.

First, you will pinpoint quick wins to reduce costs through better operational control.

Second, this information will contribute to a more effective RFP for the upcoming procurement process. Your RFPs will be based on accurate data about your activity, so your suppliers can make a more appropriate and valuable response.

How?

Correlating and analysing the data takes time, but using it to explore ways to optimise performance and costs is almost impossible without specialised tools. By creating a Digital Twin of your logistics network, we can run rapid and exhaustive simulations that highlight the savings and improvements you can make by tweaking your operations.

➡️ Talk to us to find out how you can benefit from our Digital Twin simulations

Step 4 

Add forecast information

Collate available information about forecast activity and combine it with the dataset.

Here, you’re aiming to create an accurate set of data about your company’s projected activity over the next year. Any planned changes should be factored in.

Your information should include data such as:
  • Projected volumes and target markets for new products
  • Projections for existing product lines
  • Regional promotions and other sales campaigns
  • Planned changes in infrastructure (new warehouses, distribution models, etc.)
The dataset you create will now contain granular information for logistics suppliers to respond to, with detailed data on:
  • Shipment weights and dimensions
  • Shipment type (e.g. control requirements or ambient)
  • Shipment origin and destination (to town level as costs differ within a destination country)
  • Shipment transit time required
  • Shipment volumes

Why?


Your procurement exercise can’t be fully effective if it’s based only on past data. The more accurately your RFPs represent your company’s projected activities in the year to come, the better the response from your suppliers will be.

When suppliers lack credible information about your projected activity they tend to hedge their bets to protect margins. Without transparent, granular data, you and your suppliers can’t have a precise and fully informed negotiation. The resulting uncertainty is priced in by the suppliers, and it means your company doesn’t get best value.

How?

Gathering the forecast data may not be too difficult, but expressing it in terms of detailed projections could take a lot of time.

To achieve this quickly, accurately and without errors, 7bridges has automated routines and tools.

Whether you choose to do this alone, or with our help, you should find our data gathering template helpful:

➡️ If you haven't already, download the RFI 'Data Request Template', here: 

Step 5

Add industry benchmark and real-time performance data

Use industry-wide benchmark data to identify suppliers who should receive your RFP.

If you can access real-time performance data, factor that into your analysis to highlight specific areas to negotiate with providers in order to maximise savings.

Consider whether the benchmark and performance data justifies sending RFPs to suppliers you have not previously identified.

Why?

The value and performance offered by logistics providers is a dynamic thing. With detailed, up to the minute data on each provider’s record (and the record of providers you may not have considered yet), you can plan your logistics network more securely, build in greater resilience, and identify areas for further savings as your negotiations continue.

With good data of this kind you have a solid base for making decisions about diversifying your complement of providers.

How?

Some widely available sources of benchmark data exist, but it’s not possible for an individual company to gain access to very detailed and comprehensive information.

But because we work with hundreds of providers around the globe, and process thousands of shipments every day, 7bridges is constantly gathering and analysing this information.

It means that we can offer you insights and recommendations you can’t get elsewhere. These can add further power and competitiveness to your procurement process. For help with benchmark data, talk to 7bridges.

➡️ Arrange a call with 7bridges

Step 6

Define procurement objectives

If you’ve taken steps 1-5 so far, you’ll have equipped yourself with a powerful base of data for your procurement project.

Now, you’re in a strong position to define the procurement objectives that will really deliver critical benefits for your company.

At this point, it’s important to involve all the key stakeholders in your company, to ensure internal alignment and include all the strategic considerations that will affect your logistics activity for the coming year.

Factors such as new market entries or expansion, sales and marketing promotions, changes to product lines, planned variations in service levels – these should all be included.

Your objectives may be as simple as:
  • Introduce 24-hour delivery for product line X
  • Lower costs for everything else
Or you may have a far more complex set of objectives that are closely mapped to your business growth and development plans.

Why?

A truly effective procurement process should aim to give suppliers realistic information about your company’s expected activity over the term of the new contracts.

If your RFPs are based too heavily on past activity, you’ll be asking your suppliers to give you better terms for what you did last year. Then, when your upcoming year’s activity diverges, you’ll pay more for anything that wasn’t explicitly included in the negotiation.

In Step 4, you created granular information on your expected activity. Now, you are deciding how you are going to use that data to steer negotiations toward outcomes that help your company achieve its strategic goals.

How?

Once you have formulated your objectives, incorporate them into the RFP. Here’s a template for a clear, structured RFP that suppliers can respond to easily.

➡️ Download the RFP template, here:

Step 7 

Generate RFPs and a supplier response template

Using all the information gathered so far, create a clearly structured RFP that invites explicit responses on each of the objectives you have identified.

Your RFP should include the information about your company’s projected activity and goals, so that your suppliers are equipped to make an informed response.

Use the RFP as the basis for creating a standardised template for the supplier response, so that the responses exactly match the structure of the RFP.

Why?


The quality of your RFP can determine the quality of the response.

By creating an RFP that clearly and accurately specifies your company’s logistics activities and procurement goals, you give your suppliers the best chance of meeting you with a good initial offer.

They won’t need to price in extra margin to cover contingencies because your RFP is incomplete or unspecific in certain areas.

And you will be able to see clearly where good value is being offered, and where it could be improved.

By sending a standardised response template to each supplier with the RFP, you’ll make the review and comparison much easier, so that you can progress quickly to the next stage of the negotiation.

How?

7bridges generates forensic RFPs and structured response templates as part of our Procure module. 

But - even if you're looking to conduct your logistics procurement exercise without our help, you will find our RFP Response Template helpful:

➡️ Download the RFP Response template here:

Step 8

Brief the bidders

When you issue your RFP, accompany it with a briefing that lets your bidders know as much as possible about the way you are conducting the process.

Your briefing should include information such as:
  • Will it be a single or multi-phase bid process?
  • Will the contract be awarded to the best-price bidder or is there a different formula for awarding it?
  • What are the timelines for each phase of the bid?
  • How will bids be scored? (Say whether you are giving all the criteria or keeping some secret)
  • What feedback will the supplier get at each phase?
  • Are you aiming for a single provider, preferred provider, or multi-provider operation?
  • Define the scope for bid awards: all traffic? Lane by lane? Segmented by weight/volume, or control requirements?
You may have reason to withhold some strategic information for confidentiality, but as a general rule, the better informed your bidders are, the better their responses will be.

Why?

When you communicate clearly with bidders, it encourages them to commit time and effort to their responses. It builds credibility and engagement on both sides.

Supplying basic information such as response submission dates helps you keep your procurement process running smoothly.

Equally important is the information you provide about bid scoring, traffic segmentation, and your approach to bid prices.

All of this will affect the way your suppliers bid. Done well, it will increase transparency and improve the final outcome.

How?

To help you give bidders a clear, structured understanding of the context for the bid, download our Briefing Letter Template.

➡️ Download the briefing letter template, here:

Phase 2: Response Analysis & Iterations

Step 9 

Assess provider responses

When the suppliers have responded to your RFP, compare the responses individually and in combination against the current contract terms, to determine the new proposal’s impact on:
  • Fully delivered costs (i.e. rate card + surcharges)

  • Delivery times

  • Other service quality criteria you’ve specified
To calculate the fully delivered costs, you’ll need to make use of your historic data and the data you collated in step 4. Apply the new surcharge terms to these datasets to discover whether the new proposal offers overall savings.

Compare each proposal to last year’s actual performance; this gives you negotiating leverage and shows if any price increases have crept in.

Compare the proposals to each other; this shows which suppliers are strong and have scale, and points up aggressive bids to gain business where infrastructure may not be so good.

Why?

Analysing the fully delivered cost will show you whether a decrease in rate card prices is countered by a rise in surcharge prices.

This approach ensures that any changes between submissions from the same supplier are clearly visible, if a multi-bid process is adopted.

A full analysis will show you the most appropriate combination of providers, and the most effective way to use them in order to reduce costs and improve delivery performance.

How?

You can see that there’s a lot of number-crunching to do in this step. Really a lot.

If you’ve got the talent, systems and resources to do this – thoroughly – as part of your procurement process, it is certainly one of the keys to unlocking value.

If not, the computing and analysis power in 7bridges’ Procure technology can provide comprehensive answers and simulations in this stage of your procurement process. Find out more here.

➡️ Learn more about 7bridges' Procure module

 

Step 10

Stress-test the new provider proposals

Having identified your optimum combination of suppliers, test it by applying a variety of different operating scenarios and analysing the impact on cost and performance.

Your scenarios could include:
  • Increase/decrease of volumes for a specific product/shipment type

  • Increase/decrease of volumes from/to a specific origin/destination

  • Changing delivered-by objectives for all or part of your customer base

  • Shipping a new product 

  • Shipping to new location
If you identified future scenarios in Steps 4 and 5, now is the time to test your new provider proposals against those.

Why?

Before committing your organisation to the terms of a new set of contracts, it’s important to stress-test the proposals against the real data you’ve built up so far, and run simulations of any planned future developments in your company’s activity.

By doing this, you’ll create an accurate projection of the savings and performance gains you can expect as the outcome of your procurement effort. These projections can play an important part in achieving support for any required operational changes.

Your stress-test analyses will also point up anything you’ve overlooked or miscalculated so far.

How?

The computational effort and breadth of data required for this exercise puts it beyond reach for most organisations.

Our machine-learning, AI and Digital Twin technology was developed specifically for this, making it possible to generate rapid solutions to all the scenarios you need to explore.

In addition, the 7bridges Procure technology includes industry-expert management and guidance of this part of your process.

➡️ Learn more about 7bridges' Procure module

Step 11

Conduct phased negotiations

If you’ve decided on a multi-phase bidding process, you can now begin that.

Using the detailed, granular information you’ve gathered so far, return to the providers with specific requests for changes to their proposals.

During this phased bidding, you’ll be repeating steps 7, 9 and 10. Gradually, you will be able to eliminate the less competitive proposals.

Keep your bidders abreast of any timeline changes, their current score levels, current wins, areas for improvement, and risk areas where competitors are close.

It’s common for dialogue with bidders to take place between bidding rounds. This helps keep the process open and move negotiations in the right direction. You can keep suppliers up to date on any areas for concern, and accept further info from them on services and bid prices.

One thing to note: do not spring any surprises at this stage. For example, don’t announce after the first bid that you are changing from a single provider to a multi-provider model. That might seem to be a way of pressuring the bidder to offer more, but it’s counter-productive. Building transparency and trust gets better results.

Why?

View a phased bidding process as a way of benefiting from the transparency you’ve created so far. Rather than eliminating less competitive bidders in a single bid round, you keep communication open and allow them to improve their offer. Each bid round gives you the opportunity to evaluate the bids against each other and work with the bidders to extract more value.

How?

After each bid phase, by repeating the analyses and testing outlined in steps 9 and 10, you’ll identify the detailed progress of your negotiation, and the value each revised bid offers to your organisation.

You’ll also pick up any anomalies in the phased bids. These may begin to highlight bidders to eliminate – but as always, keep the bidder informed so that they can respond positively.

To help with this part of the process the 7bridges Procure module includes industry-expert bid management and guidance.

➡️ Talk to 7bridges about the Procure module

 

Step 12 

Announce winners, thank losers, conduct legal negotiations

As part of your transparent procurement process, it’s vital to communicate the results to all parties.

When you’ve decided on the contract winners, confirm the terms of agreement with them. But don’t forget to let the unsuccessful bidders know too; as a courtesy, you may choose to advise them how their bids might have been improved.

Equally important, let your internal stakeholders know what the new arrangements are; give them plenty of notice for the changes they may need to make.

Advise your legal teams as soon as possible.

Why?

Why thank the unsuccessful bidders? Simply, because they gave a lot of time and effort to respond in detail, and if you maintain a good relationship with them, they may be next year’s successful bidders.

You’ll also build a reputation as a company that’s serious about its logistics procurement, good to deal with, and worthy of a respectful response.

Step 13 

Begin operational migration

Well in advance of the start of the new contracts, notify and prepare your operational teams for the changes they’ll need to make.

The stakeholders you’ll need to notify will probably include:
  • In-house IT teams

  • Logistics and despatch operations teams

  • Accounting teams
Make sure they have plenty of advanced warning to allow them to complete any necessary systems integration work, and check regularly with them that the work is on track.

Why?

A procurement exercise that’s great on paper is only partly complete. To avoid leaking value and creating disruption when the new contracts begin, it’s essential to prepare operational teams for the new arrangements.

It’s not uncommon for new contracts to get off to a bad start because systems integration has not been completed in time, or operations staff have not received clear instructions and processes for the new arrangements.

How?

If you are onboarding new providers, get their integration documentation and support as early as possible.

Give an early, comprehensive briefing to the logistics operation team so that they can devise and troubleshoot any new process rules.

And for the most efficient way of taking the stress and risk out of onboarding and working with new (and existing) suppliers, check out the Send module in the 7bridges AI-powered logistics platform.

➡️ Learn about the 7bridges Send module

Phase 3: Audit and monitor performance

Step 14 

Monitor performance

Once the new contracts have begun, check regularly that the terms and rates agreed are being delivered. Check that change management has been successful and that your operations are optimised.

Do this by:

  • auditing provider invoices and cross-referencing against orders and records from your logistics operation team.

  • identifying invoice items and charges that are anomalous or incorrect. Initiate reclaims procedures to recover overcharges from your providers.

  • conducting quarterly reviews with suppliers to correct any value/performance problems

  • checking for process control failures which led to higher charges; for example, when items are despatched in overlarge packaging, or sent unnecessarily via express services. Pass this data on to the logistics operations team, so that operations can be optimised.

Why?

No matter how good the terms of a new contract look on paper, your procurement effort can only deliver the promised benefits if unanticipated losses are prevented.

Around 20% of logistics provider invoices contain overcharges, incorrect rates or some other form of error.

It’s all too common for these to pass unnoticed because there isn’t sufficient systems and data co-ordination between logistics teams, accounts payable, and supply chain management.

Checking that your operational processes are running as planned is vital too: without this important safeguard, your logistics team may not be fully exploiting the gains made in the procurement exercise.

How?

Since this auditing and cross-referencing significantly impacts the real-world value of a procurement exercise, we’ve automated it. Our Audit tool saves financial staff 75% of the time, and typically recovers 2-5% of your logistics spend.

➡️ Get more information - speak to 7bridges

Logistics Service Procurement Templates

Download templates to support your logistics service procurement process.

These templates are designed to accompany the 14-step logistics procurement process set out here. Included, you will find:

  1. RFP Template
  2. RFP Response Template
  3. RFI Data Request Template
  4. Briefing Letter Template

To download each of the logistics procurement templates*, simply fill out the form (you'll see links for each document on screen, and we'll also send them in an email).

 Download Logistics Procurement Templates

Completed steps 1 - 14?  What's next?

There are more ways you can make a much greater impact on your organisation's logistics performance - and on its overall competitiveness and profitability. Add strategic value to your procurement and build a world-class logistics capability with these innovations:

Logistics procurement product offering transparent background

Optimise your network design

Radical improvements in cost and performance can be achieved by a smart, data-driven redesign of your logistics network. 7bridges' AI - L.E.O - gives you the power.

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Gain total control of spend

Replace outdated and inflexible rules-based decision making with smart, real-time calculations. Automate shipment processes and eliminate wasteful errors. The 7bridges SEND module makes it happen.

7B_icons_Send module
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View the supply chain live

Track orders and shipments across carriers in real-time, to build network resilience, improve customer experience and boost retention rates. Our MONITOR module provides the view.

7B_icons_Monitor module
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Offer new services, shape demand

Give greater customer choice and quality to offer a world-class customer experience and increase basket size. With the SELL module, you’re on it.

7B_icons_Sell module
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Optimise inventory holdings

Save more through data-driven order routing and inventory management. Dynamically match stock distribution to demand, and streamline returns. It’s all a matter of BALANCE (watch this space, our new Inventory Optimisation technology is coming soon!).

7bridges Balance
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Cast your net wider

Reduce costs by adding new suppliers, and shorten the time to onboard them, from weeks to hours. Work as easily with multiple carriers as with one. With the 7bridges platform, the hard work’s already done.

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To find out how all this can happen for your organisation, get in touch.

And finally, don’t leave it too long! A logistics procurement project shouldn’t be a rare event. Reduce the interval before your next round, to stay on top of costs and performance.

Talk to an expert

Need to take the headache out of logistics procurement? The 7bridges team can enable you to execute a world-class procurement exercise for all logistics services. We can help you gather and clean data from existing service providers, and identify previously obscured SLA breaches and cost savings opportunities.

We'll also help you negotiate and select the optimal providers for your unique business needs.

Speak to one of our team to learn more:

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Powered by artificial intelligence, the 7bridges platform enables you to swiftly upgrade your logistics:

☑️Integrating 7bridges to your business can take less than two weeks
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☑️ You can rapidly connect to new logistics suppliers, globally
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DISCLAIMER

*This Procurement Toolkit, Templates and associated materials (together the 'Materials') are provided for informational purposes only. No undertaking, warranty or other assurance is given, and none should be implied, as to, and no reliance should be placed on, the accuracy, completeness or fairness of the information or opinions contained in the Materials. The information contained in the Materials is not subject to completion, alteration and verification nor should it be assumed that the information in the Materials will be updated. The Materials should not be construed as legal, tax, regulatory, financial, investment, trading or accounting advice or services and users of the Materials are urged to consult with their own advisers in relation to such matters.In all cases persons should conduct their own investigation and analysis of the information and data in the Materials.

Any forecasts, opinions, estimates and projections contained in the Materials constitute the judgement of 7bridges and are provided for illustrative purposes only. Such forecasts, opinions, estimates and projections involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forecasts, opinions, estimates and projections. Accordingly no warranty (express or implied) is or will be made or given in relation to, and no responsibility or liability is or will be accepted by 7bridges or any of its directors, officers, employees, agents or advisers in respect of, such forecasts, opinions, estimates and projections or their achievement or reasonableness. Users of the Materials must determine for themselves the reliance (if any) that they should place on such forecasts, opinions, estimates and projections.