Like a marriage?

Lívia Nagy, Supply Chain Manager, CEE, Southern Region, GlaxoSmithKline Consumer Healthcare reports on the company’s supply chain tendering learnings in Hungary.

Today, there is huge competition among logistics service providers, not only in Western Europe, but also in Hungary. In the past 6-8 years, capacities of logistics services has multiplied and today there are 20 logistics parks in Budapest and the surrounding areas, providing 700K sqm of warehousing space. And although the countryside offers bigger opportunities for further growth, the market is still growing, with all the big LSPs present.

For many companies on the market, outsourcing is the most viable option to make their activities more efficient.

Why did GSK outsource?
The reasons are very similar to those highlighted in the sidebar, and are primarily to enable it to focus more on the company’s core activities, to reduce costs and achieve higher levels of service. Best option and LSP can be selected through tendering and it provides a good opportunity to review the market and obtain a wide range of information on services and trends.

GSK Hungary – experiences in supply chain tendering
In our case, 3PL services required in the tender included not only warehousing but distribution, international forwarding, customs clearance and value-added activities. Our supply chain included 11 countries – Hungary, Romania, Bulgaria, Moldova, Slovenia, Croatia, Bosnia, Macedonia, Serbia, Montenegro and Albania – and our 3PL partner integrated into our supply chain, representing us to our customers as the last link in the chain. It is therefore essential to take care to select the most appropriate partner for the job.

The preparation phase of a tender requires the most of the work, and it is worth spending sufficient time and energy on it to avoid annoyance later on in their process.

What is preparation?
First of all, it is important to define basic principles for selection. It can be very difficult to make a decision without first knowing what it is that you want. This is how we prescribed the main criteria for our ideal candidate:

• Competitive price (not necessarily the lowest offer)
• Facility – state-of-the-art quality, technology and safety
• Expertise, experience, customer references with similar type of products
• Forwarding/distribution conditions: lead-times, truck–fleet quality, condition and ownership
• Value-added activities: labelling, over-stickering, promotional packing
• Capacity
• Geographical location, easy-to-reach from our office
• Financial stability
• Company culture, customer approach,
• Flexibility, reliability, commitment to continuous development

The next step is to decide on a range of potential suppliers. A different approach may be required if the tender is an ’open-tender’, as any company can apply, or vice versa if candidates are pre-selected based on the defined criteria. In the first instance, the number of applicants can be huge and it can be time-consuming to match all offers and conditions without knowing whether or not candidates meet our criteria.

Our practice is to choose what we call ‘closed’ tender and to visit a certain number of suppliers before deciding on the range of potential candidates. Preselection of candidates takes time, but gives us an assurance that the offers will be closer to the defined criteria.

The next phase involves the collection of all necessary data and statistics and development of the Invitation to Tender (ITT) document. A secrecy agreement (non-disclosure and restricted use agreement) should be signed and returned by the candidates upfront. This is pre-condition to obtain the ITT documents.

ITT documents typically comprise the following:

• Introduction and scope of the tender
• Tender process – objective and evaluation criteria
• Definition of requirements
• Conditions, product information general specifications, quality requirements.
• Statistics, database
• Appendices

A carefully constructed ITT can be a robust base for a successful tender. It should detail all requested activities and performance levels. These are the conditions we would like to incorporate into the contract with the selected service provider. It makes our life easier later in the process.

If a tender is well prepared and the specifications and requirements are clear, applications can be completed within 30 days.

It is key to provide candidates with comprehensive data and statistics in order to avoid spending extra time explaining and answering questions as you wait for applications. Details of the last years’ operations can provide sufficient background for the calculations and estimates necessary to put together a successful offer. Unnecessary afterclaps can then be anticipated.

Tendering is an important process and we need to ensure we make the right decision and choose the best option for us. A successful tender is based on a well prepared ITT document. All important data and requirements should be included in this in order that all the desired information and conditions are incorporated into the contract with the selected LSP. It is of great help later on when we enter the analysis phase. In our practice, the document is therefore also checked by quality and legal departments.

Then comes the most active period for candidates, developing and submitting their offer. In order to avoid additional work and disappointment, we provide a template of the standard format of the offers we would like to see. In this way, it is much easier to carry out analysis and achieve the final result.

As the selected service provider will represent us to our customers, it is essential that we make the best decision and have sufficient information on the operation, structure and resources of the LSP. If these details are clarified, we can avoid trouble later on concerning the performance of the selected company. We should therefore be very careful and obtain references from client of the tenderer. Bad performance can cause fatal failures and, in the worst case, can lose us customers. This cannot be compensated for by any penalty from the logistic company.

Errors in the past have tended to result from partners not clarifying their needs before concluding the contract or due to misunderstanding each other. This generates of lot of hassle afterwards and can spoil the relationship very quickly.

In summary
The successful tender should end with the selection of a partner that we are confident will contribute to our business and have the required level of performance. This will help to build a good image with our customers and develop a win-win relationship. Both parties should keep in mind that the selection and agreement is a mid- or long-term decision that cannot be changed easily or quickly. It is worth being cautious in advance than having disappointment later – just like in a marriage!