Recovering 14% margin in a fuel supply tender
For a client in the transport industry, we developed a model predicting the price aggression thresholds of four competitors.
Trans-Logistic Sp. z o.o. entered a tender for fuel supplies for a fleet serving 37 stations. Without a precise strategy, the margin could have fallen below profitability, risking liquidity problems in the third quarter. We prepared a mathematical model that indicated specific exit points from the bidding.
The challenge
The company had been losing contracts for 6 years to three local rivals who used aggressive price policies. In the previous year, Trans-Logistic lost two key orders worth a total of 4.2 million PLN because their offer was more expensive by just 3 cents per liter. The client's sales team had previously operated on intuition, which was too risky given the current oil price fluctuations on world markets.
In April 2024, a new tender for 18 months of service appeared. Competition publicly announced a fight for every cent of margin to eliminate smaller players from the Łódź region. The client needed hard data, not intuition, to decide how low they could go in the electronic auction without losing real profit.
Our approach
Darek Nowakowski and our 3-person analytical team spent 9 days analyzing data from 47 previous tender proceedings in this industry. Instead of general assumptions, we focused on 12 behavioral variants of specific decision-makers among the competitors. We used game theory to check at what amount rivals enter a phase of so-called emotional aggression and when their Excel sheet tells them to give up.
We analyzed opponents' financial reports from 2022-2023 to estimate their real logistics costs. Thanks to this, we knew where their mathematical calculation ended and the bluff began. Mathematics has no emotions, so we simply calculated the probability of every move on the bidding timeline.
The solution
We provided Trans-Logistic's management with a precise decision model with 4 bidding scenarios. Each scenario included instructions: what to do if rival A lowers the price by 2%, and what if rival B suddenly stops bidding. We prepared a simple calculator in a spreadsheet that the client's salesmen had open during the final bidding in June 2024.
The system automatically showed the safety threshold. If the price went below a 1.42 PLN margin per unit, the model ordered an immediate stop. This avoided the winner's curse – winning a contract that generates losses in the long term. We wrapped everything in a short 4-page instruction that the team understood in 20 minutes.
Results
The mathematical model allowed Trans-Logistic to win the tender with a margin 14% higher than their blackest scenario assumed. The company not only won the contract but did so on terms that guarantee financial stability until the end of 2025.
Timeline
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April 8, 2024Audit of historical offers and analysis of 47 competitor tenders.
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April 22, 2024Building the game theory model and Monte Carlo simulations.
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May 14, 2024Workshops with the sales team and testing bidding scenarios.
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June 5, 2024Participation in the final bidding and winning the contract.
"To be honest, I didn't believe it was possible to predict competitor moves to the cent. Darek's model showed us when our rivals would crack. We won without giving away profit for free."