Competitive Bidding From the Seller vs. Buyer's Viewpoints
From healthcare to tech, organizations from across all industries can partake in competitive bidding. This process of procurement promotes fairness because a company of any size and income has an equal opportunity to be a buyer or seller.
It also creates a competitive environment that enables companies to make informed choices on investments, as well as identify ways to innovate their business or product.
What is Competitive Bidding?
Competitive bidding is when organizations, vendors, or contractors propose their best offer and compete to work on a business project. Those that win the bidding process will then have the opportunity to work or supply services and goods to the soliciting business.
This procurement process is most commonly associated with government agencies and organizations that need large-scale services or products for a given period. Before competitive bidding can begin, however, these companies and agencies need to issue a Request for Proposal (RFP), which is a document that communicates what their project is and what services or supplies they need.
Interested vendors can then submit a solicitation proposal that details what they can provide, the processes involved with providing the supplies, and the fees they will charge for the company's consideration.
Buyer's Viewpoint on Competitive Bidding
There are 2 key processes a buyer will go through when seeking vendors to work with.
Identifying the Most Qualified Vendor
Typically, vendors that are submitting bids will describe in their proposal their ability to provide goods and services, how they would execute orders, a timeline of deliveries, and their history of past projects they have worked on. It is also important that the bids include how much it would cost the buyer to purchase the services.
By including this information, buyers can find a bidder that has the most experience and qualifications that fit their budgets. For instance, if a hospital were seeking a vendor that can provide and install an x-ray machine into their building, they would want a company that specializes in medical equipment and has staff that is experienced in installing it.
Once all proposals are collected, the buyer must evaluate each one to narrow it down to the best offer. Oftentimes, this evaluation process will involve face-to-face interviews with the vendors.
To promote transparency, buyers should inform the winner of the bid, as well as all the interested vendors who were not chosen, about their final decision.
In some cases, an established company that has worked with vendors before may not publish an RFP. Instead, they will choose organizations that have previously met their expectations in past projects. This reduces the time spent on creating an RFP and evaluating proposals.
Seller's Viewpoint on Competitive Bidding
The competitive bidding process is much different from the seller's viewpoint. When responding to an RFP, sellers will usually consider-
The Bidding Process
Generally, the process of making a bid begins with the seller reviewing all the requirements of a buyer's RFP. It is important that the seller thoroughly understands what the company needs to ensure they have the skill and inventory necessary for the project. In the case that they are uncertain about a requirement, it is recommended that they ask the buyer for clarification.
Sometimes, a vendor will decide to not respond to an RFP if they believe they have a lower chance of being selected due to lack of experience or if the buyer's price expectations are too low.
However, if the seller deems themselves qualified for the project, they would create and submit a convincing proposal that demonstrates how they could satisfy all the terms of the RFP.
When developing the proposal, a key component that must be included is cost estimation. To properly estimate how much money the service or product will be, the seller should conduct market research. This will help them identify an appropriate price that is consistent with the market rate.
After their submission, the seller must wait for the evaluation process to be complete to which they will get a response as to whether or not they were selected.
How to Stand Out
When responding to an RFP, the seller needs to stand out from their competitors. Buyers are typically more inclined to select a bid that has a low price, but a seller with a high-priced bid can attract a buyer's attention if their proposal is unique or if they demonstrate their excellent qualifications and experience.
The bid can also indicate the advantages of buying from the seller, sich as seamless delivery or quick installation.
Benefits of Competitive Bidding
Buyers and sellers that are involved in competitive bidding can reap several benefits.
Competitive bidding enables companies to find the most qualified and experienced vendors in the industry with the best contract terms. This allows buyers to purchase goods and services at a fair price.
Competitive bidding gives sellers the independence to set their own rates and work on projects that they are specialized in. It also reduces the amount of money a seller would have to spend on marketing campaigns for their products and services.
Buyers and sellers involved in competitive bidding should understand each other's viewpoints to ensure that the procurement process is productive and mutually beneficial.
- What Is Procurement? Complete Guide For Businesses
- Competitive Bidding From the Seller vs. Buyer's Viewpoints
- 11 Cost-Saving Strategies in Purchasing and Procurement
- 10 Simple Ways to Find Wholesale Distributors
- 9 Steps of the Procure-to-Pay Cycle
- 5 Steps of the Supplier Management Process
- 4 Steps for Effective Vendor Vetting