A sourcing or tender process is used to select the best product or service for a certain category of expenditure.
Unfortunately, lots of these processes are not run well, resulting in loss of large saving opportunities, delivery of poor quality products, or less favorable terms.
When selecting suppliers through a tender or sourcing process, the buyer works in collaboration with internal customers or budget holders. Internal customers are buyer’s colleagues working in other departments, such as finance or manufacturing. They are the ones who originally raised the need for the purchase and who will be actually transacting with the selected supplier. Internal customer involvement is usually highest (around 70%) at the specification stage and then drops to around 30% in subsequent stages.
1. Specification development
What are the needs of your internal customer i.e. the person who requires the product or service to be purchased? As a buyer, you challenge and “translate” these needs in specifications that suppliers can understand.
The objective of buyers at the specification stage is twofold:
- Reduce total costs
- Safeguard a competitive market at the upcoming negotiation stage
Developing specifications in its turn is a 4 step process:
- Assess Customer needs
- Assess what the market has to offer
- Develop specifications
- Define winning criteria
2. Market Assessment
Once you have a clear picture of the business requirements, your next step is to formally invite suppliers to quote for your business.
You formally approach the market via:
Request For Information
- This is used to pre-qualify suppliers to whom you would send the RFQ.
- An RFI is usually a simple and short questionnaire for the supplier, which enables the buyer to judge if the supplier is promising and has a good chance to win the business.
- An RFI is optional. If you know the market relatively well, there is no need for an RFI.
A Request for Quotation
- This is a formal request to the supply market to quote for your business.
- The RFQ is a more complex document with a company presentation, bidding instructions for suppliers and detailed information about the project and requirements.
At the negotiation stage, you analyze the offers and select the most promising suppliers to negotiate with. Only then you prepare for negotiation.
During the meeting, your goal is to clarify the terms of the offer and get additional value beyond what has been offered, this might range from a lower price, a better quality product, improved payment terms etc. At the end of this process, you conclude the deal with the best supplier.
Most suppliers build in a price concession in their first offer. In order to obtain this concession, you must:
- Build competition – To get the best results at the negotiation stage, you should have two or more credible alternatives.
- Carefully analyze all quotations to get a feel for a stretching but credible target.
4. Contract discussion
You prepare a formal contract with the supplier and you limit your companies’ exposure.
Read more about the Competences:
|Strategy Development||Category Management||Finance Management|
|Cost Management||Sourcing Process||Negotiation|
|Legal||Performance & Contract Management||Operational Procurement|