First Objective: You ensure to have an apple to apple comparison
Without this step, you may engage yourself into a negotiation with a misguided view and goal.
You need to make a clear and detailed analysis of the costing so that you know exactly what each supplier quoted for and what each supplier excluded or quoted differently.
Below are the key points to align:
1) Currency
This is the most basic mistake you cannot afford to make.
Please ensure to ready carefully the supplier quotation, and if it not clear, request him for a clarification to identify what is the currency quoted.
If 1 supplier used a different currency, ask him to revise his offer, or make the conversion but obtain his concurrence on the same to avoid dispute.
If all suppliers have different currencies, I would suggest to use USD as standard currency to make your evaluation.
2) Unit of Measurement (UOM)
Note : Somme suppliers may quote using different UOM forcing you to necessary realign the offers.
For example one supplier quote by KG and another one by bag of 25 KG
Another example would be a supplier quoting for cable in drums of 500 Mtrs only whereas other quote by meter.
3) Minimum Order quantity
Some suppliers will tell you that they have a minimum order quantity beyond which they will not accept any order.
=> You need then to align all offers and consider this information on your tabulation. You cannot consider lesser quantity and hence total cost for that supplier.
4) Packaging
Make sure the packaging quoted is acceptable by your end user or else, ask supplier to revise it and inform you of any cost impact . This could be a critical evaluation point in some cases, for example if you purchase chemicals for which your plant can only accept some specific type of packaging and would refuse drums delivery.
5) Documentation
Depending on the type of purchase, in some cases documentation can have a cost not negligible, hence you need to consider when you evaluate the offers on an apple to apple comparison basis.
6) Warranty
The cost of your material/service can be very much impacted by the duration/type of warranty you are requiring.
Hence you need to know first what you need and ask suppliers to resubmit if it is either over considered and if the warranty proposed did not meet your requirement
7) Incoterm & Delivery cost
You shall immediately capture if delivery costs are included or excluded.
It could be shipping costs, as well as insurance costs and other associated charges.
For easy use, request your suppliers to quote on a same basis using same INCOTERM
There are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specifies who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
Below the table of Incoterm for your reference and use:
If one bidder quoted EXW (cost at the factory) and all other DAP (cost delivered to you), make sure to ask the bidder to revise the offer and you may get surprised depending on the location, urgency, weight and volume .
For further detail on shipping strategy specially after order is place, please check out my other course about EXPEDITING.
8) The Price & Price validity
Here also, don t be misguided be initial prices received.
Read carefully the conditions associated and if an offer is not for a fixed price , you need to clarify and request or a revision.
You always must seek to enforce a FIRM & FIXED price.
Similarly if an offer is having a very short pricing validity that may expire prior you finalize the negotiation, ensure to request for extension of validity to avoid a major hiccup on the process and having all efforts going down the drain.
Then only once you have that knowledge, you can with confidence know who is the lowest bidder, the second lowest etc. You can decide how you will want to approach next move.
Second Objective: You will ensure that all offers are technically approved
By doing so , you mark your next step easier, so that the negotiation can then focus exclusively on commercial matters.
It is very important , so that you keep the flow and sequence under control and do not reach a situation where just before shaking hands, there is a set back with a technical point left open.
The preparation of your negotiation meeting requires you to ensure there is no stone unturned that would ruin all your efforts. The compliance to the tender/RFQ requirement and end user need is the most critical part and hence to be considered accordingly.
The end user needs to give clear and detailed evaluation that nobody, no auditor would question.
The evaluation must be purely technically and have no commercial information on it
The evaluation must be preferably approved by the end user manager to ensure compliance and limit risks of frauds.
Any reason for rejection must be written and you shall review it
.In case of irrelevance or no valid case, you must discuss it with end user and with supplier.
Always take any technical point to supplier to check if they can comply and revise their offer, so that you would realign it and have it now considered as technically acceptable. That would give you a better power of negotiation to have more offers acceptable to consider in case your have an issue negotiating with one bidder.
Samples of Commercial Bid Tabulations & Alignment process:
We have seen above the need to assess each offer, align them as per your requirement to come to an apple to apple comparison.
To do that I use an excel based tool that I call Commercial Bid Tabulation (CBT), that some other call bid evaluation.
1) CBT rev o draft
I therefore recommend that you do a first draft of the CBT when you get the first round of the commercial offers from the bidders.
Advantage: You shall identify any gap for any offer, then this will drive your commercial query & negotiation content
Sample CBT REV 0 draft Price comparison-CBT REV 0.xlsx
2) Commercial Query form
Once you have made the first evaluation, you shall capture each highlighted gap or issue into a list that will be used for your negotiation.
You can then either discuss it on the phone, face to face or by email.
In case negotiation is done on face to face, have it recorded and signed off by both parties using a minutes of meeting form.
Sample of MOM -Minutes of Meeting- 04-03-19 sample.doc
In case of email exchanges, we recommend to have a written official record , and the best way is to use a commercial query form.
I have been using it across different companies and this has given me a competitive edge to avoid dispute with suppliers and secure commercially any agreement.
It will also look more professional and will give you confidence to obtain objectives desired and savings.
Such form can be signed & stamped and be attached to the future order, or referred to.
The aim is that the commercial query form covers ALL aspects you wish to negotiate, all key points that will give you satisfaction if confirmed by supplier.
It includes but is not limited to :
>Scope of Work Compliance (inclusions/Exclusions)
>Capabilities
>Lead Time
>Price Value
>Price Inclusion/ exclusion
>Price Variation (if any)
>Liquidated Damages (for example per day of delay)
>Compliance to T&C of your company
>Payment Terms
>Financial strength
Others
The response from supplier on the commercial query form shall be attached to future order or contract and become a contractual document.
TIP:
If the supplier does not respond clearly confirming the points required or giving an answer to your satisfaction, you need to reply and add a column with your response sending a rev 1 of your commercial query form . Many rounds possible till agreement is found, responses deemed acceptable.
3) CBT Rev 1 final (reflecting the realignment of offers)
The revised CBT is to be issued once you have finalized the rounds of negotiations/clarifications as well as alignment of offers. It shall incorporate any added cost , revised price, condition, lead time and optional offer.
It must be exhaustive , highlight clearly any major issue, exclusion, and recommend the selected bidder providing the reasons for award recommendation. (technical acceptance, quality, lead time, price etc)
As part of the negotiation objective you should have ensured that any major issue pointed out at the early stage of the process has now been closed with the supplier you wish to award following the negotiation/alignment process.
The document shall be self explanatory and main document for awarding decision as well as management/audit review.
