To bid or not to bid, that is the question
I am going to make a statement that will initially delight all suppliers and probably bring condemnation from other procurement managers.
Not every order has to go out for bid, including large ones.
OK so maybe that wasn't too provocative and probably makes sense to you on some level. As a salesperson, you don’t want to be competing, you just want people to buy from you. As a procurement person, reading through bids is a huge pain. So when is the right time to bid things out (RFI, RFQ or RFP) and when might it make more sense to use you preferred partner? There are as many opinions on this as their are people on the planet. This is just one of those opinions.
It’s not all about the money. In most procurement practices money is the main driver to decide whether or not to take something out for RFx. If the project is going to cost more than x then you must bid it out. But is that really the best way to look at it? In my opinion, it is not. First, you never want a supplier to feel comfortable even if you are not going to another supplier and especially if the dollars are large. If there is a very large deal on the table the biggest fear that a supplier has is that the project will be cancelled or not approved. In this case, procurement and finance must be in lock step with each other. When there is a budget number, procurement can use that as leverage. If the deal is really large, procurement will also want to make sure the CFO is on board with how the deal is going to go down. Being on the same page with finance will ensure that procurement is using all of its available financial levers. All that is great, but it still doesn't answer the question of why not just bid it out to maximize savings against the budget. There are cases where bringing in an alternative solution could wipe away any savings that were to be gained. This can be in the form of training, time on the staff learning something new, implementation issues, and more. If the business is happy with the incumbent and the technology is meeting the needs of the business and there isn't anything out there that is easier and better then it might make sense to not bid that out. It also shows that there is a business partnership which will be helpful to both parties. Both sales and procurement love to use the word partnership but rarely is that truly ever the case. As you can see there are other, creative ways that procurement can maintain leverage when they are not bidding something out. The last tip on this is that even though you may make the choice not to bid something out, you don’t want to let the supplier know that ☺.
It is about the solution. As you can see, I don’t think that money should be the driver for an RFx situation. I do think that it should be about the solution. If you are bringing in something brand new to the business or if the incumbent has fallen down or you just want to see what other technology is out there, those are the times you need to go out for RFx. These tools are more about helping the business understand the marketplace and less about price. If you want to use the RFx to only influence price, you are going to make short sighted and more costly decisions. You need to use the RFx process to find the right solution. You will get a great price but more than that, you will get the best solution for your business. When you are going through the RFx process, this is also the time that you have the greatest amount of leverage with the suppliers and you will need that to ensure that you have the best contract terms, best initial pricing and best ongoing pricing. This is a key point here. You want to make sure that you don’t just get a great first year deal but that years 2 and 3 are just as good and that year 4 and beyond (should you continue with this solution and supplier) don’t have major cost increases. Contract terms are also key. This is your chance to take out auto-renewal clauses, put in termination for convenience clauses (you won’t always get this one but I always put them in on the first pass), negotiate the appropriate limits of liability, get the right tiers and any other business terms you want. This process is the chance for that, don’t miss it! Getting the right solution will set your business up for long term success and that is where the real cost savings are.
These are two of the main areas where I see opportunities to bid and not to bid. Each case is unique, of course, but I am willing to bet that ultimately they will fall into one of these two categories. I am sure that there are those that agree and disagree with these opinions and I would love to hear from you!