A tender process is about as competitive a form of negotiation as you can get. From traditional blind bidding to online reverse auctions, they are an extremely effective way to quickly get to a lowest price whilst benchmarking the market along the way. But they’re far from perfect.
The secret to running a great tender is in the setup:
1. Maximum Competition: The way business is packaged up into parcels for tendering is critical in maximising competition for each parcel. For instance, look to split out commodity components or processes within a finished product or service.
2. Minimum Standards: Set clear minimum standards for all important aspects of the tender, anything above which you would be happy to accept. Be absolutely clear that there is little value in exceeding these standards. If that’s genuinely not the case, a tender process may not be your best option.
3. Single Variable: Scoring matrices rarely work: cost inevitably dominates. Combine multiple factors into a single variable, e.g. cost per successful outcome, total return on investment and run the tender on that basis to maximise your success.
4. Simple Process: Only collect data you need, and only filter out providers on the critical minimum standards. Make the process as painless for them as you can, and give them plenty of room to surprise and impress you.
A well timed, well run tender can consolidate wide swathes of business and deliver double digit percentage savings with ease. Run badly it can exclude great opportunities, kill blossoming relationships and do long term damage to quality, sales and profits. In the worst case, you could end up buying something that’s not fit for purpose from someone who has fatally overstretched themselves just to win the deal.
USE TENDERS: When there are multiple potential providers with low differentiation and where relationships are robust or unimportant
DON’T USE TENDERS: where alternatives are not easily comparable, where there are many variables to consider, where potential value of collaboration is high