Procurement, sourcing, tendering: What do these logistics terms actually mean?

Each industry uses its own language, which can sound quite cryptic to people who are not in the know. For some people these are everyday terms and, for others, they lead to increasing confusion. This also applies, of course, or even more so, to the logistics industry, especially when it comes to the different ways in which freight rates are purchased. Procurement, sourcing, tendering? Spot buying, contract buying? Why so complicated? Are there really such big differences? Yes, there are. We’ve tried to explain them for you here.

What does procurement (eProcurement) mean?

First and foremost, the word procurement means purchasing. Procurement is therefore the generic term for the operational purchasing process and includes everything which relates to the purchase of materials or services from companies and organisations. In our context of logistics purchasing, in particular, it includes: the procurement of freight rates. So who offers the best conditions for my freight?

The digital version, i.e. eProcurement, means that the processes do not take place on an analogue basis using a telephone or paper, but via digital platforms.

What is sourcing (eSourcing)?

Sourcing stands for procurement strategies in purchasing, i.e. the company’s own plan as to which suppliers freight and services are to be obtained from – and for what period of time. It is therefore important to find the optimum supplier for your own needs with the highest quality and reliability at the best price. This requires a detailed analysis of the market and an extensive comparison of products and quotes from a wide range of suppliers.

Sourcing (or the digital version, eSourcing) thus forms the foundation for the entire procurement process.

What does tendering mean?

One way of actively procuring transport services is through tendering. The suppliers are requested to quote for the required services within the scope of an invitation to tender. For this purpose, the shipment and transport data is prepared in advance. During the tender phase, the service providers are invited to submit their quotes. Before that, however, tender preparation takes place, which simply means the preparation of the shipment data, i.e. the prerequisites for the process to be able to start in the first place. This is followed by the tender phase, i.e. the invitation to tender and the invitation to suppliers.

During the assessment of the quotes, validation and evaluation takes place in order to determine which service provider has offered the best terms under the required conditions. The quotes are compared and simulated in different scenarios.

What is the difference between contract buying and spot buying?

If a suitable supplier or logistics service provider is found for cooperation, there is a difference between long-term contracts that are concluded, called contract buying, or short-term, day-to-day purchasing, which is called spot buying.

In contract buying, a long-term tender is issued and the fluctuations in the rate prices are taken into account so that the freight rates are fixed for the entire term of the contract. Contract buying is the right choice when someone needs to have something transported from A to B all the time. The right timing of the rate purchase is also decisive here since the rates fluctuate on a seasonal basis. It may therefore be that a long-term rate purchase in the peak season will lead to a higher rate. The transport times are also decisive here: Depending on the season, the rates can vary greatly.

In spot buying, the daily rate prices play the central role. As a result, purchase prices are much more dynamic and can fluctuate heavily depending on the time. Spot buying is more suitable for those who want to have goods transported occasionally and at irregular intervals.

Hopefully these short explanations were of some use in helping you find your way through the jungle of the language that is used in the logistics industry. And, if you want to combine all these processes, SHIPSTA is the perfect solution. We want to digitalise logistics procurement and, above all, make it easier, which saves time and money!

From the first quarter of 2020, spot buying will find a perfect home at SHIPSTA thanks to the new SHIPSTA GO marketplace, meaning that short-term transport can be purchased with just a few clicks.

Especially in contract buying, the tendering process is still largely very similar. With the end-to-end solution SHIPSTA FLEX we have optimised this process so that it is carried out digitally without media disruption and provides full transparency.

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Interested to have a look into SHIPSTA FLEX?

About SHIPSTA

SHIPSTA was founded by Christian Wilhelm (CEO), Stefan Maratzki (CTO) and Oliver Ritzmann (CCO) in 2015. The innovative software company is headquartered in Luxembourg and has a branch in the Digital Logistics Hub in Hamburg. SHIPSTA has become one of the market leaders for eProcurement solutions in Germany. The eProcurement platform optimizes freight tenders by digitalizing and automating them. SHIPSTA’s clients include global companies from sectors such as food, high tech, pharma and automotive.

Press contact:

Griffel & Co Kommunikation GmbH
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