CPSM Blog

Choosing between negotiating and competitive bidding

This last task(1-E-3) within the Sourcing section deals among other things (like  buying strategies including spot buying , JIT and forecasting) the perennial sourcing question of when do you negotiate and when do you try getting competitive bids. Here is an overview:

You do competitive bids when there are a large number of suppliers,the purchased products are manufactured to the same industrial standards,adequate time is available for the bidding process,dollar value is high,when specifications are very clear to buyer and potential sellers,when fixed price contracts are involved - in contrast to cost reimbursable contracts,considerations of the modified Kraljic risk-value matrix,if your external customers have enough lead times for the purchased product and do not specify suppliers,high flexibility on quantity-variety-timing from supply manager perspective.

All reverse conditions to the above call for negotiations with either existing suppliers or competent suppliers you can immediately find.

One exclusion from all of this is small value frequent purchases that can be handled through P-Cards or  blanket contracts based on I guess some form of competitive bid.

Decision matrix,supplier diversity,business continuity and information security

I was rather impressed with the bridge exam portions of this task (1-E-2). For one it gets into decision matrix development after you receive bids. It also discusses how important it is to check out the business continuity plans of the supplier being distinct from disaster recovery plans. But the really fine point is that you need to ask specifically about the specific information security arrangements the supplier has in place. In particular, if an employee of the supplier leaves, what is the process of eliminating access to the IT network or the process of access revocation. Very interesting because this kind of employee attrition happens all the time with overseas suppliers......

Who do you source from?- Existing versus new suppliers

Analysis of the supply base can reveal important action possibilities including understanding the nature of the market in the particular category.

Existing versus new suppliers is a complex decision and includes no less than thirteen different considerations including urgency,long-term relationships,supply base optimization  and Internet based searches.

Several other sections speak in more detail to these considerations, central to the Foundations of supply management.