Working with vendors is an essential part of the procurement function, and many of us enjoy the relationships we form with our suppliers. I often spend quite a bit of time on the phone chit-chatting with my vendors, getting caught up on the latest family news, and of course listening to pitches about new products and services. The relationships I form with my vendors are important… they help me get the best deals for my company. Right?
It can be easy to pre-select a single vendor for a new project instead of considering all options. Driven by relationships and a pattern of working together, we often go back to the one vendor we enjoy working with the most, and we think we’re getting the best price by using that vendor. The reality is, our relationship might actually be costing us money.
We conducted a study of print procurement projects around the world and found an average savings of 23% when a project is put out to bid to multiple vendors. In fact, we found the more bids that were solicited, the more the savings increased. This suggests that working with a single vendor is not as cost effective, and although we may have our “favorites”, going out to bid will get us a better deal. The lesson here is to always use a “bid and buy” approach to reduce the chance that relationships are getting in the way.
But let’s take sourcing to the next level. If getting bids from multiple vendors makes sense, what if each vendor could see the bids from the others? Would this get even better pricing? Reverse auctions offer this capability and are increasingly popular for larger projects. In this model, vendors submit their bids and can then see the bids from others (but not the names of the vendors). If the vendor thinks they can beat the lowest price, they have the option of submitting a new bid with a lower value. In this way, procurement benefits from the transparency provided, and in fact, vendors benefit as well.
Another methodology for bidding is to keep vendor information hidden from procurement teams until a certain time. So called “sealed bidding” means proposals are evaluated solely on pricing, quality, delivery timeframe, and other KPIs, but not on the name of the vendor. This removes the possible bias that I might have for one vendor relationship versus another.
Does all of this mean my relationships are useless? Not at all! Our database of vendors is the lifeblood of procurement, and without great working relationships we can’t get the job done. The key here is to balance our preferred relationships with best practices in running the bidding process.