Electronic tendering beats paper-based systems

With the internet opening up doors to a greater array of suppliers, procurement groups now have a wider range of choices and options and typically lower prices on offer. Obtaining the lowest purchase price, however, does not necessarily achieve the best outcome.

‘Value for money’ (VFM) purchasing – where the supplier’s proposal is evaluated on a wide range of criteria – is now dominant over simple product price decision-making.

Good purchasing decisions have been, and always will be, about judgment, experience, communication, and understanding. This article discusses how electronic tendering and evaluation software can facilitate good purchasing decisions, and how the same tools can increase our product sourcing efficiency.

While buyers and suppliers are familiar with their paper-based systems, users often cite shortcomings, such as:

the difficulty of overseeing a large number of tenders across multiple sites;

purchasing policy compliance;

dealing with increasing quantities of information and paper volumes;

difficulty in recovering paper audit trails;

inconsistent evaluation criteria; and

the lack of a mechanism for VFM comparison between departments or groups.

An electronic tendering system provides for online search, download, Q&A, and submission of bids. Features such as security encryption, date/time stamping, and automatic notification can also streamline the RFx process and provide a consistent, auditable process.

Some organizations are also using electronic tendering to better manage ‘nuisance’ bids by enforcing a supplier-pays process: the supplier pays to either download the RFx document or upload their response, ensuring that only those suppliers with a genuine desire to win the business submit a response. This approach can also make the RFx process cost-neutral.

Purchasing decisions or evaluation may be categorized into three groups – catalog (‘line items’ where price and delivery are the only discriminates); standard (low-risk purchases where there are non-price factors); and complex (purchases where there is the complexity and/or risk is introduced by functional and performance specifications).

Most supply chain management systems support catalog purchases, which typically involve automatic ordering of supplies based on inventory control principles. However, standard and complex purchases require human decision-making and typically require the support of an evaluation system where VFM is the key criterion.

A tender evaluation system offers many advantages for these sorts of purchases:

improved reporting, auditing, and reconciliation;

consistency in evaluations, as procurement has a common set of evaluation plans and policies;

improved thoroughness and accuracy of the evaluation, and hence a faster process;

more time for project management;

greater visibility of supplier selection, allowing more effective contract and supplier management; and

less time in justifying decisions, as the rationale is fully recorded at the time of evaluation.

Two key aspects of a decision are price and compliance with product specifications. Price is ultimately quantitative and calculable. Comparing product compliance is a more qualitative activity, driven by human judgment.

VFM means achieving a balance between benefits and costs. Typical VFM considerations include fitness for purpose, quality, and service; whole-of-life costs associated with acquisition, use, maintenance and disposal; and contribution to organizational priorities such as environmental impacts.

With the internet opening up doors to a greater array of suppliers, procurement groups now have a wider range of choices and options and typically lower prices on offer. Obtaining the lowest purchase price, however, does not necessarily achieve the best outcome.

‘Value for money’ (VFM) purchasing – where the supplier’s proposal is evaluated on a wide range of criteria – is now dominant over simple product price decision-making.

Good purchasing decisions have been, and always will be, about judgment, experience, communication, and understanding. This article discusses how electronic tendering and evaluation software can facilitate good purchasing decisions, and how the same tools can increase our product sourcing efficiency.

While buyers and suppliers are familiar with their paper-based systems, users often cite shortcomings, such as:

the difficulty of overseeing a large number of tenders across multiple sites;

purchasing policy compliance;

dealing with increasing quantities of information and paper volumes;

difficulty in recovering paper audit trails;

inconsistent evaluation criteria; and

the lack of a mechanism for VFM comparison between departments or groups.

An electronic tendering system provides for online search, download, Q&A, and submission of bids. Features such as security encryption, date/time stamping, and automatic notification can also streamline the RFx process and provide a consistent, auditable process.

Some organizations are also using electronic tendering to better manage ‘nuisance’ bids by enforcing a supplier-pays process: the supplier pays to either download the RFx document or upload their response, ensuring that only those suppliers with a genuine desire to win the business submit a response. This approach can also make the RFx process cost-neutral.

Purchasing decisions or evaluation may be categorized into three groups – catalog (‘line items’ where price and delivery are the only discriminates); standard (low-risk purchases where there are non-price factors); and complex (purchases where there is a complexity and/or risk is introduced by functional and performance specifications).

Most supply chain management systems support catalog purchases, which typically involve automatic ordering of supplies based on inventory control principles. However, standard and complex purchases require human decision-making and typically require the support of an evaluation system where VFM is the key criterion.

A tender evaluation system offers many advantages for these sorts of purchases:

improved reporting, auditing, and reconciliation;

consistency in evaluations, as procurement has a common set of evaluation plans and policies;

improved thoroughness and accuracy of the evaluation, and hence a faster process;

more time for project management;

greater visibility of supplier selection, allowing more effective contract and supplier management; and

less time in justifying decisions, as the rationale is fully recorded at the time of evaluation.

Two key aspects of a decision are price and compliance with product specifications. Price is ultimately quantitative and calculable. Comparing product compliance is a more qualitative activity, driven by human judgment.

VFM means achieving a balance between benefits and costs. Typical VFM considerations include fitness for purpose, quality, and service; whole-of-life costs associated with acquisition, use, maintenance and disposal; and contribution to organizational priorities such as environmental impacts.

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