In a recent survey conducted by Xeneta, shippers were asked how often they ran tendering exercises. This is a very interesting question because it poses several challenges for procurement teams and the right answer must address several unique factors for each business.
The key factors that should decide timing and frequency of tendering are
* current rates versus benchmarks for contracted rates for companies with similar volumes
* cost and resources required to undertake the exercise
* material changes in the market that impacted risk factors since the last sourcing exercise
* changes in demand volumes or patterns.
Typically, mature procurement teams regularize their sourcing event at a particular time of year, taking account of seasonally factors so as not to introduce risks to supply chains at sensitive periods. If a business is less seasonal, then it may be advantageous to avoid the Q1 rush in which carriers sales teams may not have sufficient time to examine your RFQ in the detail you wish.
Xeneta reported huge divergence in tendering frequency, from monthly to very infrequently. Whilst monthly is probably excessive as it will damage relations with carriers and introduce excessive overhead, waiting 24 months is probably very unwise also. In a market with rising prices, it is not necessarily always wise to retain your contract for as long as possible. In cases where carriers have an increasing number of other clients paying higher fees and their capacity is stretched, then service levels can degrade and late deliveries can cause false economies.
Shippers that negotiated the most competitive rates can also be the customer that carriers are happy to let go when demand increases. Shippers need to assess their risk appetite that is typically inversely proportional to the value of the cargo. Being a customer of choice can often mean better service levels but it does come at a cost. The best way to mitigate emerging threats to the supply chain is to be in a position to re-tender swiftly. This necessitates preparedness in terms of demand data collation but also using a tool that enables a swift and iterative bidding process that drives competitive tension.
Sourcing optimization is a best-of-breed technique to enable shippers to react swiftly to negative and positive changes in the market.