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Competitive Bidding

September 29, 2010

At a recent IACCM member meeting in Dallas, there was a lively conversation about the best ways for buyers to ensure they are getting a good deal.

I had commented in my presentation on the potential risks of ‘using competition as a weapon’. The frequency of bid activity has increased in recent years, prompted in part by economic conditions, but also because the advent of electronic tools has simplified the process for a buyer. However, developing a full response remains relatively expensive for suppliers and inevitably, if they are approached too regularly without winning business, a level of cynicism sets in.

A senior procurement manager challenged these remarks with the observation that he had found regular bid events to be the only way to stay abreast of market conditions and offerings. In general, his organization aims to go to the market every 2 years, to test offerings and to force action by incumbent suppliers. These events typically lead to price reductions and often also to enhanced services or product features. In his experience, many suppliers simply are not proactive in delivering improvements. They have to be pushed.

Opinions in the room varied, but I can certainly appreciate that many suppliers probably do fail to keep their customers adequately updated on product or service enhancements – and certainly they are not always proactive in reducing the price to existing customers to reflect market trends. This failure is not always deliberate, especially for customers that are not viewed as ‘strategic’ and therefore have limited resources allocated to them.

Suppliers dislike regular bid activity. They say it is costly and undermines strong relationships. But strong relationships are based on trust – and that means not taking advantage of established customers by withholding price reductions or product / service enhancements.    Unless they can propose a better alternative, suppliers are likely to see growing use of competitive bidding as a way to more frequently check prices and spur incumbents to greater effort.

2 Comments
  1. Excellent post, thanks.

    “unless they can propose a better alternative, suppliers are likely to see growing use of competitive bidding as a way to more frequently check prices and spur incumbents to greater effort”

    Yet the intimate ecology of all these relationships makes everyone equally responsible for the game.

    Buyers can use competitive bidding until suppliers find less margin to compete with and either cease to supply or are forced to merge. The consolidated suppliers will have more scale, control of the supply market and a memory. They can now turn the tables on the buyers and probably will.

    The wheel turns once again…. . Can we find a better way?

    Jorge
    Founder of The Online Bar
    http://obacard.me/Jorge

  2. Rachna Shukla permalink

    Good Discussion

    Whatsoever, the bottom line though is that competitive biding usually do save a lot of money.

    Rachna Shukla

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