PurchTips edition #403

When you request proposals from the supply base, you want two things:  participation from all great suppliers and aggressively low bids from them.  But, if you behave in certain ways over time, you may be unwittingly conditioning your supply base to provide inflated proposals or to not respond at all!

Have you conditioned your supply base to:

• Cut corners or withhold value? If you always select the low bidder even when that means onboarding the worst supplier available, you imply that quality, delivery and service don’t matter.  As a result, some suppliers who compete on performance will decline to bid.  That alone will relieve some of the price pressure you are trying to put on the supply base while taking some good options off of the table.  In addition, suppliers who do bid will look to cut corners or withhold value in order to win your business.  As such, a historical over-emphasis on price isn’t always healthy.
• Expect you to give your “favorite” suppliers the chance to negotiate? If you historically haven’t disqualified some of the higher bidders, instead giving them the same chance to negotiate as lower bidders, you can expect that some suppliers will inflate their prices knowing that they will be able to reduce them later.  Of course, they hope the negotiation enables them to win your business at a higher price than they would have had to offer if you accepted the low bid without negotiation or only gave the one or two suppliers with the lowest bids the chance to negotiate further.
• Expect you to award business to the incumbent supplier regardless of how competitive other suppliers and their bids may be? When the supply base sees you awarding business time after time to the same supplier regardless of how much more competitive other suppliers get, they assume that your sourcing process is a mere charade to pressure your incumbent to keep its prices in check.  If the supply base sees no legitimate chance of you changing suppliers, they will stop responding to your RFP’s, which will relieve the price pressure you hoped to apply.
• Expect no regard for loyalty? On the other hand, if the supply base sees you changing suppliers all of the time regardless of incumbent performance, they will think that you are an unloyal customer and they will not risk offering low initial pricing in the hopes of establishing a long-term relationship that will become mutually profitable in the future.

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