This is our second in a series about procurement policy. The last post addressed Spend Authority, who can authorize what level of spend. However, from a sourcing perspective, the greater question then becomes what vendor should you be spending that money with.
A key component of your policy should indicate how to use bids in your vendor selection process. This should include when bids are needed and how they should be conducted. The benefits to doing this are to create a competitive, arms length environment focused on structured vendor selection with the intent of value optimization for the company.
But when do bids truly deliver on the promised value?
Too often the “bid” is an exercise to meet a policy requirement. Three numbers are obtained just to check all the boxes, with a winner already in mind long before the last item is received. Or time is devoted to small dollar, tactical items focusing on price alone when larger more complicated efforts are not pursued – just because they easily don’t fit into a bid structure.
Bids do provide visibility into market pricing. However, they can also be a tool to gain important insight into vendor offerings. To help elevate this process, effective policy regarding bids and vendor selection should address the following:
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Set spend levles to trigger when bids are needed.
- Some level under which no bids are needed
- A “mid-range” where a set number of bids are required, may include only price, and can be conducted by the business unit
- An upper limit where spend over that amount required a more thorough Request for Proposal process and must include the sourcing department
- Establish a process for exceptions. They will occur and should balance the value of reaching out to the market, business disruption, and the availability of alternatives.
- Set guidance on what should be included in a bid. This should scale with the spend levels discussed above. Bids can range from very specific quotes on items to complex RFPs that detail capabilities as well as related costs. For more complex RFPs, focus on requirements and structure the bid to enable easy comparison of offerings.
- Incorporate guidelines to bid incumbents again. Base this on an overall assessment of the value the vendor has provided and current market conditions. Don’t promote this solely as a way to manage vendor performance or pursue a change in vendor. Encourage an environment of ongoing, healthy competition for your company’s business.
When bids are set within this context, they will drive value as an important information gathering tool and not just a policy hurdle. Instilling this level of rigor into vendor selection at all stages of a company’s growth will provide the foundation to Spend Smarter and Grow Smarter.