After completing this lesson, you will be able to:
"Let's talk about some of the pricing strategies and bidding formats that come out of the box in both RFPs and Auctions. You will note some of the total cost, bid transformation, and price breakdown titles within the template names, so let's have a look at what those templates do."
Total Cost requires its own template, and is available in both auctions and RFPs.
Total cost events enable you to include factors other than price, such as shipping cost, taxes, and the cost of switching to a new supplier.
You can configure different values for cost components for each supplier or participant (participant-specific values).
The total cost can be expressed in a formula, such as: Price * quantity + shipping + taxes + switching
Project owners can add terms into line items and choose from a standard list, the Term Library or create new terms.
When creating a line item using total cost, unit bidding or extended bidding can be interchanged, which changes how the supplier will enter pricing:
For example, there is no switching overhead for suppliers you already work with (incumbent suppliers), so for incumbent suppliers you'd assign a zero value for switching.
You determine whether the values for cost factors are to be provided by the suppliers during the event, whether you want suppliers to see only their own rank, their own rank and the lead bid, or all supplier responses.
Supplier ranks are based on the unit cost. Suppliers see their total cost and unit cost. They also see the cost terms that you made visible for them.
Like Total Cost, Price Breakdown requires its own template, and is available in both auctions and RFPs. Price Breakdown templates collect a breakdown of the supplier's price, instead of soliciting total prices.
Project owners will create terms for suppliers to enter their pricing, which will affect to the total cost of the event.
By itemizing supplier responses at the term level, instead of the total price, the additional information helps you to:
When creating price breakdown events, line item cost terms are required. If item terms are not created within the line item, the project owner will receive the following error message:
" must contain at least one term that has 'Include in cost' set to 'Adder' or 'Subtractor' and 'Apply to cost for' set to 'Per unit' in order for the formula in term 'Price' to work.
This is because price breakdown has an embedded formula which requires new terms to include in the cost: Your cost = (price * multipliers) + adders
Project owners will need to create new terms, and specify the Include in cost factor.
Suppose that you want to understand how the supplier arrived at that price of their laptop quote. You know that you want the package to include a laptop, monitor, mouse, and bag, and want your suppliers to quote you on each one of those costs for that particular part to gain insight on each cost component.
Bid Transformation can compare your total cost for each bidder when prices and other components vary widely. Bid transformation allows you to transform participants' bids by adding cost terms you define.
These terms can be different for different suppliers, such as adding an import duty for one supplier and a switching cost for another. Yet it enables each bidder to see a "bid to beat" that is adjusted for them.
Bid transformation is useful for:
Strategy:
The strategy of bid transformation is to not only cause suppliers to compete on your costs, but also to do it in such a way so as to bring suppliers into competition with one another and create a unified market where none existed before.
When quantifying your factors, it is important to understand the difference between soft and hard costs.
When creating line items, cost terms are used to transform suppliers' bids into your costs.
Project owners can modify existing cost terms, or create new terms as adders, subtractors, multipliers, and percentage discounts.
The basic formula is: Your cost = (price * multipliers) + adders
When creating cost terms, verify that they are behaving as you intend by validating the changes in suppliers’ ceiling price using Supplier View under Actions.
When A.K. Consultants starts bidding they see a ceiling value of $9,259.25. They do not see the 8 percent you will add to make the ceiling price of $10,000. The bid decrement they see is $92.60. Note that the bid transformation feature has transformed both values to hide the cost component you added for them.
The highest bid A.K. Consultants can submit is $9,259.25.
When Apex Corporation logs in to bid, they see the leading bid and the required decrement transformed into their own terms.
The required decrement is $95.24. When the bid transformation adds Apex Corporation’s transformation of 5 percent, it comes out to about $100. At this point A.K. Consulting sees the leading bid as $9,166.65.
The buyer sees these bids as the adjusted costs. So, bid transformation transforms participants’ bids into your total cost as an adjusted value that is different for each participant.
To open the Event Management Guide's section on how to create total cost auctions or RFPs, click About Event Total Cost Formulas | SAP Help Portal.
Creating Price Breakdown Events:To open the Event Management Guide's section on how to create events that use price breakdown, click RFPs with Price Breakdown | SAP Help Portal.
Creating Bid Transformation Events:To open the Event Management Guide's section on creating bid transformation events, click Creating Bid Transformation Events | SAP Help Portal.
When lots are parallel, Can participants create alternative responses is visible. When enabled, participants must submit a primary bid before they can create a secondary bid, which is now part of an alternative bid.
Alternative bids allow suppliers to bid alternate quantities, term values, and/or bundles to show the project owner how to save more money. Suppliers can also be allowed to add their own items.
Sometimes suppliers would like to respond to your RFP or auction in a slightly different way in order to provide you with better pricing. As experts in providing that particular item or service, they often can make suggestions that can save you money.
Suppliers must first respond to the original bid before they can submit an alternate bid using the following types:
Three types of alternative responses:Alternative Pricing allows suppliers to submit an alternate bid by providing a different value for term(s).
Participant Bundles allow suppliers to group the items in the event together as bundles to provide discount pricing.
Tiers allow suppliers to create multiple volume tiers for one or more line items and provide a distinct price for each tier. This allows each supplier to communicate where their price breaks are, based on quantity.
Suppliers first submit a bid on the items/services and terms that the project owner has created:
Primary bid of 100 units of product x in color blue.
A supplier may suggest a different brand of an item, an alternate material or component in an assembly, or a different time frame for a service. Once the primary bid has been submitted, suppliers can submit an alternate bid such as product x in color black or purple.
Each supplier could potentially bundle items together differently to offer discounts, depending upon their own unique capabilities and costs.
Suppliers may have price breaks at different quantity level tiers, so suppliers could give you one price for quantities 1-100, another price for quantities 101-500, and a third price for quantities 500-1000.
To open the Event Management Guide's section on how to create events with alternative bids, click Can participants create alternative responses | SAP Help Portal
"If the commodity being sourced is sold against a pricing index, Index auction types are recommended."
In an index auction, suppliers bid in discounts or premiums relative to a market index. Typical index prices follow this format: price/unit of measurement.
Index auctions are useful in the following cases:
A standard index helps you account for frequent price fluctuations. You use index bidding for standardized commodities that have established price indices:
Which format will suppliers use to place their bids?
You are a buyer responsible for purchasing lumber.
Due to fluctuations in the price of lumber, it is difficult to negotiate a specific price with your suppliers. One week, the lumber might cost $500 / Thousand board feet, and the next week it might cost $650 / Thousand board feet.
In order to account for these fluctuations and still have a competitive online market, you decide to use index bidding. Your strategy is to use premium bidding format and base it off of the index value found in the Hardwood Market Report.
You will want to keep an eye out for these key words like bid transformation, total cost, price breakdown, and index within the auction and RFP templates, as these will separate pricing strategies."
Log in to track your progress & complete quizzes
