Procurement 101

Strategic Sourcing: Choosing Sourcing Process

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5 minute read

Posted by

Logan Price

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 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 it is important, and the benefits of focusing on your bidding process.

What is the Competitive Bidding Process and Why Is It Important

Competitive Bidding is a solicitation process used in procurement in order to determine the most suitable suppliers of specific goods or services. The buyer for a company or government agency will outline a solicitation document which 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.

The responses are then evaluated and compared to determine the vendor that the contract would be awarded to. If necessary, negotiations are conducted to reach a mutually beneficial partnership between the supplier and the company requesting the goods or services. 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) are:

  1. Request for Quotation (RFQ)
  2. Request for Proposal (RFP)
  3. Request for Information (RFI)

What is the Difference Between an RFP, RFQ, and RFI

RFPs, RFQs and RFIs can be used together or separately. 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 is looking for information but you are not confident about what solution would best solve your problem. RFIs are generally written in a casual style and include general questions aimed to educate and inform.

An RFQ Appraises

Responses to RFQs provide cost estimates for meeting a specific need. When you send RFQs, you should already know exactly what you want and why you need it; all you still need is to explore the financial specifications. 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.

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 is to fulfill your business needs.

Benefits of Competitive Bidding

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, buyers can find the most qualified sellers of products and services at a low cost.
  • Buyers get to work with sellers who have a track record of success and are qualified to provide specialized services.

For the Seller:

  • Sellers can execute competitive bids at rates they determine using proposals they know and understand.
  • It allows sellers to save money they could have spent finding potential buyers for their goods or services.

Using cloud-based software for procurement is popular because the processes of supplier relationship management, sourcing, and contracting are sped up, performed more efficiently, and are done in a much more efficient, transparent, and cost-effective way. Explore the Tradogram website to learn more about how procurement software can streamline your procurement processes, or contact us today to find out more about how we can help your business succeed.

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