The Outsourcing and Procurement Forum within the CILT recently ran a seminar on the topic of invitations to tender (ITT).
The presentations began controversially as Alan Slater, a logistics consultant, posed the question, ‘Do 3PL service providers exploit their customers from the outset or have the customers provided a poor specification in the form of an ITT?’
He suggested that 3PL companies were not always honourable in their dealings with their customers and that excessive profits were being made from these relationships. He went on to say that some of this was the fault of the own account operators who didn’t monitor their outsourcing costs closely enough. He also produced examples where tenders had been misleading and had resulted in the service providers inadvertently over resourcing the contract and thus overcharging their clients.
Ian Veitch, CEO of NYKLogistics pointed out that average margins in the UK 3PL industry were around 2.9 per cent with a 44 per cent decline in the past five years, with 87 per cent of contracts now under three years in duration. He went on to outline what 3PL companies wanted to see in an ITT.
These include: A pre-selection of potential suppliers; an established range of desired outcomes; clients not to be over-prescriptive; encouragement of innovation; and to know whether the solution is to satisfy current needs or expectations.
Veitch suggests that 3PLs should be set targets and that these targets should be innovative, challenging and achievable with built-in rewards and penalties.
NYK estimates that it costs in the region of £30,000 to prepare for a major tender. It is therefore imperative that the information provided by the potential client is accurate and comprehensive.
Simon Edwards, a solicitor with Aaron and Partners, said that the ITT should ideally be replaced by a proper contractual document as soon as the contract is awarded. But this is often not done until the contract has been running for some time, in which case the ITT may be the best expression of what the terms are. The initial ITT must be prepared with this in mind.
On the subject of potential alternatives to formal ITTs, Mark Parsons from Freight Traders gave an insight into e-procurement and the advantages it had for the placement of large transport contracts.
Parsons produced a case study in which 3,500 carriers were reduced to 19, saving the client over 10 per cent in transport related costs. This process would have been impossible using a manual system.