A lot has changed in the freight ecosystem over the last few decades – From regulations to carrier technologies. The way we look at international freight procurement – The Request for Quote/Price/Tender (RFQ/P/T), however, has been the same for decades.
RFQ is the first step towards freight procurement and the one that decides the cost of your freight. This is where with the help of the right tools, you can drive significant cost savings.
While signing long-term rate contracts is effective in curbing costs to some extent, it’s often not possible for enterprises to employ them. The demand-supply entropy in the real world leads to unprecedented shipments and poor predictability. That essentially brings more spot contracts to the table for the enterprises.
Your spot RFQs limit optimization by design
Over time, enterprises develop trust with select vendors. These vendors receive an RFQ and return a rate to the vendor. This transaction typically happens over emails and phone calls. The same media is employed when enterprises want to negotiate on the rates shared by the vendor.
The logistics team reaches out to vendors every time there is a new lowest bid and tries to negotiate the offering. In every instance, the team needs to reach out to all vendors and try to negotiate a better price.
For the logistics team, we have –
- A short deadline to close the RFQ with an offer, where a single negotiation is slow, manual, and unconsciously affected with vendor biases.
- Engage multiple vendors using tedious mediums (phones, calls), repeatedly. The efforts increase in multiples for every new vendor you engage with – essentially making it difficult to engage with a large number of vendors.
This typical manual process is plagued with inefficiencies and designed for suboptimal freight rates.
To improve this process, we need to drastically increase vendor engagement thus
- Reducing the time consumed by every negotiation
- Reducing dependency on human resources
Let’s look at how GoComet’s platform solves this.
GoComet RFQ process simulates negotiations
With GoComet, your logistics team invites all your vendors on the platform. Once your team creates a new enquiry, the system automatically notifies the vendors. The team then raises an RFQ and has the vendors notified via the platform.
From there on let GoComet do its magic – It employs automation to nudge vendors for a better price with zero human intervention. Every time there is a new best price in the market, the platform notifies the vendors about it and discloses their current standing in the bid queue.
A few things are working together here –
- Vendors (indirectly) have other vendors to negotiate with. This does away with any human bias affecting the negotiations from the logistics team.
- Vendors automatically get notified of their rank in the bid queue – Zero manual intervention or updates needed from logistics teams.
When you automate the process and eliminate the need for manual negotiation, there is a significant surge in vendor engagement (what you get is a significant jump in vendor engagement). This translates to a final cost (on average, in actual) lower than the typical process by 18%. But how?
Recursive Rate Reduction – What happens inside the platform
With the GoComet platform, we have eliminated every manual process and established a much faster negotiation. Let’s take an example to see how this actually impacts the quotes received by logistics teams.
Assume five vendors (A, B, C, D & E) receive an RFQ from the logistics team at Acme Corporation. After receiving quotes from the vendors, the logistics team may negotiate with the top three by giving them a target price. In this instance, you can see that :
- There are 3 negotiations;
- This being a manual process, it is difficult to scale in case the shipments increase;
- Negotiation is highly dependent on the skills of the negotiator and not on the system.
Given the same scenario in GoComet’s platform, we have
- Average negotiation time reduced to less than a minute. And the negotiations are happening for all vendors simultaneously. In effect, we are negotiating with all 5 vendors in the same minute – allowing for 5 negotiations per minute. The potential for negotiations because of time taken is up by 150 times.
- The platform keeps driving the notifications about new best bids in real-time to simulate the cycle below. This happens recursively to reduce the rates by x% up to 6000 times.
Please note – that these calculations are for demonstration purposes only.
The biggest win comes when you invite a new vendor. The traditional way can make adding another vendor to your selection very hectic. However, on GoComet’s platform, you can get on board new vendors without worrying about the increased negotiation load. To see the impact of this, let’s go back to our example.
- In the traditional process, adding a new vendor will translate to more negotiations per pricing update and lesser time to negotiate with each vendor. The instances of negotiations are still capped at 40 times.
- In GoComet, adding a new vendor brings no change for the logistics team – No extra cost, no extra time, no extra effort. In fact, you will have yet another vendor competing to effectively shrink the cost and give you the best deal. In our example, adding a 6th vendor will increase the negotiations instances to 7200 times, that’s a 120% jump!
What’s more? You can easily track and trace the performance of your vendors and make informed decisions.
Does this hurt the vendors?
No, in fact, this provides the fairest opportunity to every vendor. The industry today has some known cases of corrupt practices like unfair monopoly, kickbacks and more. By removing any face-to-face negotiation, GoComet ensures every vendor in the market is equal and has a fair opportunity.
Also check out GoComet Freight Index – a shipping index reflecting the fluctuation of the spot rates (port pair wise) in international shipping.