Anyone who has been involved in selling goods and services in the business to business environment has undoubtedly come across the scenario where their offering looks good to the customer, yet they are unable to close the deal as the other party in the transaction needs “three bids”.
Although this is often unavoidable where public sector procurement is concerned, I am still astonished when private sector companies put similar policies in place for their Purchasing teams. Not only does this policy slow things down and prevent the organization from the timely execution to deliver on it’s value promise to the customer, if often promotes a “lowest price” mentality that usually provides a less than optimal solution.
There is no doubt that some spend categories can benefit from a tendering approach, or even expanding on this concept to the world of “reverse auctions”, where potential vendors battle it out in the marketplace in a race to the bottom… the world of lowest price wins!
Although few can argue that this approach will inevitably provide the lowest price to the purchasing party, it does not allow for other important considerations, such as quality, lead time, and the entire relationship approach to maximizing value from potential vendors.
As a Supply Chain Professional, I operate under the mindset to avoid the tendering process entirely, placing all of the flexibility for vendor selection with my team, allowing us to determine the optimal vendor(s) to maximize value for the organization and it’s customers.
The flexibility provided by avoiding the Laws of Competitive Bidding, ensures that we are able to look at long-term value, and total cost of ownership considerations more freely that if we were restricted to tenders. Remember, unit price is but one factor in value creation, and in many cases, it is far from the most important.
We need to recognize that the Supply Chain Management profession, of which procurement plays a key role, has changed dramatically over the past few decades. People are not as price sensitive as they once were. They have increasing demands from the vendor they buy from, are extremely impatient and want results now, We cannot afford to continue to operate with a three bids and a buy mentality if we expect to maintain or grow our customer base.