A question I often hear is this: How many suppliers should you invite to your logistics outsourcing tender?
It’s an important decision.
Watch the full video to find out the best approach!
When approaching logistics outsourcing, whether it’s warehousing or distribution, a solid process is crucial for achieving the right outcome. One key question that often arises is: How many potential suppliers should you invite to participate in the tender process? Let’s break it down.
Open vs. Closed Tenders
In an open tender, anyone can submit a bid. This approach is often used by government departments and large corporations to ensure impartiality. However, open tenders can be overwhelming, leading to a flood of bids from suppliers, many of which may not be suitable. On the other hand, a closed tender involves inviting select suppliers to bid, which is a more focused and efficient approach. Over the past 25–30 years, I’ve consistently used closed tenders with great success, as they allow for better control and quality in the selection process.
An informed buyer knows their market and narrows the supplier list to a manageable size. Think of it like hiring a contractor for a bathroom renovation. Instead of inviting everyone, you’d shortlist a few local contractors within your budget and style preferences. Similarly, in logistics outsourcing, narrowing down potential suppliers ensures the bids you receive are relevant and high-quality.
Working Backwards from the Ideal Outcome
To get three strong contenders at the end of the process, you’ll need to start with around five suppliers. This allows room for some to drop out—a common occurrence in the logistics industry, especially in today’s market where warehousing space is tight and providers are busy. Inviting too many suppliers, however, dilutes the process, makes you appear uninformed, and discourages bidders from putting in their best effort.
It’s wise to include a mix of suppliers. Always include your current provider, as this gives them a chance to reassess their services, pricing, and technology. Additionally, consider adding a newcomer to the market or a supplier recommended by a colleague. Beyond these, select suppliers that are proven to meet your specific needs.
Five is the magic number. This ensures you have a focused, competitive process while demonstrating that you understand your market and the suppliers’ capabilities. In logistics outsourcing, less is often more. Avoid casting a wide net and focus on quality over quantity to achieve the best results.
Related articles on this topic have appeared throughout our website, check them out:
- Supply Chain Cost Reduction: The Dangers of Supplier Squeezing
- Supplier Selection: Evaluate the Risks to Reap the Rewards
- How to Address Chronic Poor Supplier Performance
Editor’s Note: The content of this post was originally published on Logistics Bureau’s website dated March 22, 2023, under the title “Logistics Outsourcing Tender – How Many Suppliers to Invite?“.
