In Supply Chain Management, Strategic Sourcing is an essential step taken before contracts are awarded to vendors. The 7 Steps of strategic sourcing are aimed at gathering and analyzing critical information relating to your business requirements and the supplier market in order to determine the best sourcing partner across the supply chain for your business.
One very important aspect of strategic sourcing and the supplier selection process is competitive bidding. In this blog, we will be explaining what competitive bidding is, why this holistic approach is an important part of your sourcing strategy and the benefits of focusing on your bidding process.
What is the Competitive Bidding Process and Why Is It Vital to the Strategic Sourcing Process
Competitive Bidding is a solicitation process used by the strategic sourcing team to determine the most suitable suppliers of specific goods or services. The buyer for a company or government agency will outline a solicitation document that will be sent to qualified vendors. Vendors bidding for an order should demonstrate their ability to execute the order by providing details about their history of accomplishments, the cost of delivering the products or services, and the timelines for delivery.
But strategic sourcing doesn't end here. The responses are then evaluated by procurement professionals and compared to determine the vendor to who the contract would be outsourced. If necessary, negotiations are conducted between the stakeholders (the supplier and the company requesting the goods or services) to reach a mutually beneficial partnership. At the end of the sourcing activities, the outcome of a competitive bidding process should be communicated to all interested vendors, including the losers.
The three main types of competitive bid requests (collectively referred to as RFx) when implementing strategic sourcing include:
- Request for Quotation (RFQ)
- Request for Proposal (RFP)
- Request for Information (RFI)
What is the Difference Between an RFP, RFQ, and RFI in the Sourcing Plan
RFPs, RFQs, and RFIs can be used together or separately by procurement teams. To establish a relationship with suppliers, you may need to begin by asking for information to gain a better understanding of your market, and then, armed with that knowledge, issue an RFQ or RFP. What makes each RFx different is the information they provide:
An RFI Educates and Informs
The RFI response explores how a vendor might fill a need or solve a problem. It is used when your company's sourcing team is looking for information but you are not confident about what solution would best solve your problems while delivering optimal cost savings. RFIs are a valuable market research tool that provides the information you need to gain a competitive advantage in the supply market. They're generally written in a casual style and include general questions aimed to give buyers a clear understanding of market conditions.
An RFQ Appraises
In sourcing projects, responses to RFQs provide cost estimates for meeting a specific need. When you send RFQs for new sourcing projects, you should already know exactly what you want and why you need it; all you need is to explore the financial specifications in order to find the best fit for you. RFQs ask questions relating to how much the product or service will cost and are generally written in a structured and prescriptive manner that focuses on price. This document is useful for preparing a spend analysis for your procurement and identifying the most profitable sourcing opportunities.
An RFP Compares
The responses to RFPs evaluate the vendors' capabilities in comparison with each other and are generally sent if you are looking to ‘shop around’ and evaluate a variety of factors before you select a supplier. They ask specific, detailed questions in a formal and direct manner that is aimed at getting as much information as possible about a vendor's product, service, and business as a whole. This allows you to clearly see and compare how capable a vendor needs to be to fulfill your organizational goals and objectives within the procurement lifecycle.
Benefits of Competitive Bidding in Strategic Sourcing and Procurement
As part of the benefits of strategic sourcing, a competitive bidding process has several benefits for both the buyer and seller, as outlined below:
For the Buyer:
- Buyers benefit from competitive bidding by getting the best price and terms for their proposals.
- In this way, organizations of all sizes can leverage this process to find the most qualified sellers of products and services at a low cost. It's no longer about higher cost savings alone, but also about beneficial vendor relationships and efficient supplier management.
- Outsourcers or sourcing professionals get to work with sellers who have a track record of success and are qualified to provide specialized services. This ensures that they're choosing vendors who meet their sourcing requirements in line with their agreement.
For the Seller:
- Sellers can execute competitive bids at rates they determine using proposals they know and understand based on comprehensive market analysis. This can also improve efficiency and ensure continuous improvement in the
- Adopting strategic sourcing allows sellers to save money they could have spent finding potential buyers for their goods or services.
Using cloud-native strategic sourcing software for procurement is popular because it speeds up the processes of supplier relationship management, sourcing, and contracting. The best strategic sourcing tool will also ensure this strategic function is performed more efficiently, and is done in a much more efficient, transparent, and cost-effective way. Explore the Tradogram website to learn more about how procurement software can transform your procurement processes and help you achieve your business goals. You can also contact us today to explore strategic sourcing and find out more about how we can help you make better sourcing decisions to help your business succeed.