Quality is the First Stop on the Roadmap to Success

Quality is the First Stop on the Roadmap to Success

The benefits of increased quality in RFQ responses extend beyond the evaluation phase. Outsourcers that provide information that allows for a higher-quality response from LSPs also plant the seeds for success in the relationship. In a buyer-seller relationship that adheres to the old method of information asymmetry, price will be the primary criterion an outsourcer will use to select an LSP. But would a relationship be successful if network failures persist, costs continue to rise, and neither side is able to effect change to alleviate these issues? If the price is right, many outsourcers are keen to award business to an LSP based solely on which respondent offers the lowest price. However, if buyers and sellers in the LSP market have more-equal access to information, then the playing field will become level and the responses can be evaluated on the quality and the price. If an outsourcer selects an LSP based on the price and the quality, then both parties enter the relationship aligned on what success for the relationship looks like and what the real costs to achieve that will be. This prevents the finger pointing and fire-fighting six months into the partnership that often results from an RFQ process in which the low-cost LSP was selected and the outsourcer did not promote quality responses by framing the RFQ correctly. 
A New Approach for a New World 
Deregulation by way of the Motor Carrier Act of 1980 set off a precipitous drop in the cost of logistics as compared with GDP that continued for 30 years, but in recent years that percentage has stabilized. Add to that the rise of e-commerce and globalization in the past 10 years and today’s supply chain landscape has changed drastically. For outsourcers and LSPs to continue to achieve mutually beneficial relationships, they will need to change the way they do business – starting with how they conduct RFQs. For instance, when Procter & Gamble (P&G) sought to outsource facilities management for its global operations, it invited potential providers to tour sites at multiple locations and, rather than asking the providers for only a price, P&G requested a five-year action plan on how providers would manage its business. P&G shifted some of the focus away from price and on to what the company desired in an outcome, and the results speak for themselves: a 33-percent reduction in cost as a percentage of sales and service levels for the facilities have increased 17 points. In order to find a quality provider that aligned with its business objectives, P&G approached the RFQ process in a different manner. The gains an outsourcer can achieve from shorter contracts and constant rebidding to leverage competing LSPs is coming to a close. For outsourcers to avoid the costs and risks associated with these short term price-based decisions, a new way of looking at the RFQ process needs to be developed.10 If outsourcers want to create mutually beneficial relationships with LSPs and see long term growth and improvement, they need to start by revisiting how they conduct RFQs, and focus on quality, not just price.

Will Morgan