Key Elements of a Logistics RFP
In this post, I’d like to explain what to include when preparing a logistics RFP.
So what makes the logistics RFP process unique? On the surface, a logistics RFP contains most of the key elements of any RFP, irrespective of the product or service required. What makes it unique is the type and quality of details required; by this I mean how well the current and future needs of the business are clearly defined so that they are understood by the prospective suppliers.
And, while it is important to explain the business requirements in detail, most RFP’s fail when the document is not supported by an accurate data profile of the business activity for which an RFP response has been requested.
In my experience, this is arguably one of the most critical challenges facing any project team charged with responsibility of preparing an RFP. And while many RFP’s contain adequate data from an historic perspective, failure to forecast future requirements in meaningful terms and portray these in the RFP is another key challenge of the RFP process.
For example, a 50% downturn in sales of a high volume product range can have a dramatic impact on the logistics activity in a 3PL warehousing contract. And while there are ways to mitigate risks associated with volume reductions, many companies and 3PL suppliers fail to adequately address these risks during the RFP process.
In generic terms, the RFP typically includes:
- an overview of the business issue
- a description of the services required
- detailed business / operational requirements
- a preferred pricing format
- due date
- selection criteria
- time line
- how to respond and
- point of contact.
Some RFPs contain information on a cost breakdown, approach suggestions, company policies, or other documents that may be required.
Below is a summary of RFP ‘must haves.’
Overview of the Business Issue
There should be a succinct description of the business issue or problem that is driving this particular selection process. It can be in summary form and should focus on providing suppliers with an overview of the project and why it was initiated.
The first question on the minds of most prospective suppliers is ‘why is the business up for review?’ Clearly, this is a delicate issue, not only for the incumbent supplier (if there is one), but for all competitors participating in the RFP. All suppliers need to understand that the RFP process, while there are no guarantees, isn’t just about keeping the incumbent supplier honest.
Description of Services
The RFP should contain a brief description of the services that are required. In most RFPs, the services that the company needs are complex and may be difficult to describe in detail. Nevertheless, a good description of these goods or services will greatly assist suppliers in developing an excellent and highly targeted proposal.
Detailed Business Requirements
In addition to the description of services, with most RFPs there are detailed business requirements that need to be clearly outlined in the document. These can include specific operational processes, support requirements, delivery guidelines, design specifications, performance management expectations, etc.
The purpose of the business requirements section is to give the suppliers details of what is needed by the company for this purchase so that the suppliers can come up with a proposal that meets these requirements. This section should take up a good portion of the RFP.
If the requirements do not accurately reflect the company’s needs, suppliers will not present proposals that address the key issues. It is always important to collaborate with the people who are using the services for this selection project to ensure that the requirements are accurate. and
Other Information Needed for Proposal
Often there is additional information that suppliers will need in order to prepare a proposal. This information is usually the information about the organisation’s internal operations that the proposal authors will need may include demand projections, current performance information, internal survey results, etc. The key for this section is to neither provide suppliers with too little or too much information. Rather, it is to provide them only with the information that they need.
For RFPs in which the purchasing personnel know what they require, it may make sense to suggest an approach for the suppliers. Many companies will not have this section because they are looking for creative ways to approach the problem and to not want to force suppliers into a mold.
Performance Key Performance Indicators
If applicable, describe some performance indicators that will be used to measure supplier performance of the contract in the future. This will help suppliers get a quantifiable idea of what will constitute acceptable and target performance.
Any RFP needs to specify the format and length of the supplier proposals. A highly structured format for proposals makes it easier to compare the responses from suppliers. It will also encourage clarity and provide focus in the supplier proposals. It can also be useful to list the specific business requirements in a point by point format and encourage suppliers to respond to each point.
The RFP should also state the maximum length of the proposal. Having a maximum length will help to reduce the time needed to review the proposal and will also ensure that suppliers keep unnecessary information to a minimum.
We’ve found it very useful to include a ‘documentation response checklist’ of all mandatory items to be included in the proposal. This checklist will help focus the supplier on the minimum requirements of their proposal.
The due date for the supplier proposals should be clearly stated near the beginning of the RFP and in other relevant places. This makes sure that suppliers know when it is due.
This is an important section and contains essential information for suppliers. This should clearly state the areas and metrics that supplier proposals will be evaluated on. If possible, the RFP should disclose the weighting that a particular section or topic will be given as a part of the overall proposal score. This weighting is often described as a percentage or in terms of points out of a total possible score. This section more than any other, helps suppliers focus their responses on the criteria on which their proposals will be judged.
Questions and Clarification
Supplier may request clarification or ask questions about even the most well written RFPs. The RFP must clearly outline the method by which questions may be asked and a time period during which supplier questions can be submitted. The contact point for the RFP should then provide responses in written form to the suppliers.
When the response is of a nature that should be of interest to all suppliers, it is helpful to display the questions and answers so all suppliers can see them and to make them a part of the RFP as an update.
The time line should display the RFP creation date, the RFP issue date, the time period for questions, the due date for proposals, the selection period, and the contract award date. This should all be communicated as clearly as possible.
Single Point of Contact
The point of contact is the person that handles interactions with the suppliers. This means that all supplier questions and comments about the RFP will be directed to this person. It may also be necessary to include a backup contact person in case the primary point of contact is out of the office or unavailable.
Communication with suppliers is a key issue in many RFP’s and it is critical that a single point of contact with suppliers is established. Failure to strictly adhere to this is a remedy for disaster – and we’ve heard of too many examples where communication from multiple sources within the buying organisation have compromised the entire RFP process.
Pricing and Cost Breakdown
Another key area in an RFP and one that is a source of many failures relates to pricing. This is typically the subject of endless debate amongst buyers and should be given careful consideration by the RFP project team. To enable cost comparisons, it is essential that the RFP clearly stipulates that suppliers submit pricing in a specific format and include a breakdown of the costs to ensure an ‘apples per apples’ comparison between proposals.
It is also a good idea to encourage suppliers to submit pricing in an alternative, or ‘non-conforming’ format. Many suppliers have a preference for a particular pricing methodology and this will allow you to consider other options that may have been overlooked.
Some RFPs have other documents that need to be filled out as part of the RFP process. These could be diversity certifications, agreements to certain terms and conditions, or other company specific policies and forms. These should also be included with the RFP if they are part of a company’s standard procedures.
This will include special instructions on how to respond to the RFP, information on the address of where to send the proposal. It should include the submission format (hard copy, electronic, etc) and specify any additional submission requirements.
If used correctly and in the correct circumstances, an RFP is an excellent tool that your company can use to source third party logistics services from among several supplier offerings. While the RFP process is more time consuming and takes more effort, it can provide you with a unique insight into the project risk and can help the company determine the best way to move forward with a complex project.
Once a company decides to use the RFP process as the selection method, it is important to follow all of the best practices and to write the RFP in a concise and clear manner to ensure that supplier proposals will deliver the best value possible with the most targeted pricing.
Please call us to discuss any ideas or issues this article has raised +61 2 9401 9152 or post your comment below.
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