Parcel RFP Guide: Five Critical Components to Consider

As a shipper entering a parcel carrier bid process, you are subject to a great deal of doubt and risk from the unknown. At GMT, we often advise and welcome our partners to spend considerable time assessing the likelihood of success before ever entering a RFP, and we almost always want to question whether or not a contract extension is more advisable to the health of your parcel network (and your parcel carrier relationships). This is not to say that a RFP is not a successful cost avoidance or cost mitigation tactic, but rather an endeavor that will greatly impact your parcel network, and thus deserves thorough consideration. In those circumstances when it is most clear that your brand and parcel network would be better served through the means of a RFP, we know better than most that there are five critical components to a positive and rewarding RFP outcome. Today, we’re providing a summary of those five components to help you as you enter a future RFP – or possibly change the course of a current RFP.

1. Develop a strong RFP strategy that helps you identify your key savings objectives. Ask yourself, “What is the point of entering the RFP?” Is it a cost goal, a carrier relationship goal, or something else that your brand is trying to reach through the RFP? Consider key questions like:
   • What about your past experience is motivating your RFP?
   • What are the challenges your parcel network faces during peak season, or perhaps even more strangely during a pandemic, that you would like to see addressed in the RFP?
   • Are you frequently impacted by GRIs?

This seems obvious, but as with most tasks easier said than done – and worth doing – success often means constantly reminding yourself of the purpose in order to stay on track. Through such questions, you’re working to define a clear path of success. For example, by understanding the exact savings objectives you’re attempting to solve, you can more easily identify components of your parcel contract(s) to target – is there a specific carrier better aligned to meet your need, will a GRI cap assist your savings objectives more than a specific rebate percentage or vice versa, etc.

2. Remember that your RFP is not a battle, but a prospective partnership. It’s important to keep in mind that you’re attempting to enter a new agreement with a carrier(s) that is beneficial to all parties involved. Understanding the prospective carriers and their needs (just as well as you understand your savings objectives above) will undoubtedly serve you well in finding success in your RFP. By understanding the needs and wants of your prospective carrier(s), you’re better equipped to find compromises that also serve you and your parcel network simultaneously. However, as with all relationships, direct communication about a past experience is sometimes uniquely necessary in order to move forward. In these rare circumstances, we advise that you rely on data to help assert any misgivings or negative experiences you may have had with a carrier in order to move forward. Just be sure that this communication is necessary to the savings objectives of your RFP strategy and will not hinder the current RFP or a future one.

3. As you consider the objectives and questions above, prepare to think creatively and to work collectively to create solutions. Typically, it’s helpful to break down your parcel contract(s) into its base components, for example consider the components below:
   1. General Rate Increases (GRIs)
   2. Termination Clause/Fee
   3. DIM Divisor
   4. Minimums
   5. Rebate and Bonuses
   6. Major Accessorial Discounts

Consider, how can these components be targeted and/or blended to meet the savings objectives of your RFP strategy? Is one prospective carrier more inclined to meet that component or offer a compromise over another? It’s not uncommon for shippers and carriers to meet in the middle when it comes to these components, such as forfeiting a rebate percentage for capped GRIs or specific accessorial discounts.

4. Read the terms and conditions of each RFP round thoroughly, and even better – model the proposed networks that arise within each round. Understanding the terms and conditions of the proposed parcel contracts in their fullest terms is probably the most crucial step in awarding your parcel spend to the right parcel carrier. For example, if you receive multiple proposed carrier contracts with varying terms and conditions, how do you know which is the best contract to meet your savings objectives without comparing the proposed parcel contracts down to their exact savings and expenses? Through parcel contract modeling, you model your network’s activities and expenses as if they were operating under each proposed parcel contract iteration, so that you can directly compare the activities and expenses of your parcel network as it exists today, and how it would exist under those new contracts. An experienced parcel contract modeler, such as GMT, will be able to model each proposed parcel contract down-to-the-penny, so you have a complete understanding of what you are or are not agreeing to with the proposed parcel contract. Such a thorough strategy provides you both peace of mind and the ability to compare apples to oranges, literally.

5. Consult with an experienced parcel spend management partner to gauge the level of service you’re receiving from your parcel carrier and the contract(s) you would like to bid. Seeking guidance from someone familiar with a wide range of shippers with complex parcel networks and parcel contracts will help you identify answers to questions like: Are you receiving average, sub-average, or best-in-class service? What kind of prices, requests, and bonuses are feasible for brands like yours? Are there particular accessorial or rebates that tend to be prevalent or on the rise in your industry that should be considered throughout the RFP? Partnering with someone that has a variety of experience and industry awareness is another confidence builder when undergoing and entering such a vulnerable and stressful event.

Though RFPs can be a stressful and vulnerable period for your brand and parcel network strategy, they are also often a uniquely rewarding and cost saving measure for your parcel network when applied correctly. Understanding when to implement a RFP is just as important as how you implement a RFP. Applying considerable research, creativity, and flexibility throughout the process will likely serve your brand well and help build lasting parcel carrier relationships that will no doubt affect future RFP events.

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 Written by Cam Elliott

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