Despite a promising start the Welsh region slumped to a narrow 10-7 defeat at Ravenhill in the RaboDirect PRO12 - a result that saw their Irish opponents move up to third at their expense.
Matthew Morgan, the exciting 21-year-old Welsh fly-half, put in a stand-out attacking display for the Ospreys who had no less than 19 players unavailable due to international duty.
Tandy believes the encouraging displays he has witnessed in the last two weeks are evidence of the development the club's younger stars are starting to show.
And with games against Treviso and current RaboDirect PRO12 leaders Munster next up.he has challenged his players to not lose faith in their positive play.
"It's important not to get despondent after a result like this [defeat to Ulster]," Tandy told the Ospreys' official club website.
"We were adventurous in attack despite the conditions, we were positive with ball in hand and there were plenty of good line breaks.
"Off the back of two good attacking performances in the last two games, it's a sign of what we are trying to do at the Ospreys and I'm sure that supporters will be pleased with what they've seen.
"It's important that we take that attitude into the two homes games coming up, against Treviso and Munster, but add that cutting edge.
"These young boys will continue to mature with game time. If we can make that next step in our development, there's plenty to be excited about."