Understanding Pricing and Bidding Strategies within Templates

After completing this lesson, you will be able to:

After completing this lesson, you will be able to:

  • Identify Key Differences between Total Cost, Price Breakdown and Bid Transformation Templates

Event Types

"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

Total Cost requires its own template, and is available in both auctions and RFPs.

How is Total Cost Helpful?

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).

Adding Cost Terms

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.

Extended Pricing or Unit Bidding?

When creating a line item using total cost, unit bidding or extended bidding can be interchanged, which changes how the supplier will enter pricing:

  • Extended Price (Price x Quantity)
  • Price (Extended Price/Quantity)

Total Cost Example

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.

Price Breakdown

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.

How is Price Breakdown Helpful?

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:

  • Learn more about your suppliers’ businesses.
  • Compare suppliers’ prices more critically.
  • Decide if the supplier’s price is reasonable.

Creating Terms in Price Breakdown

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.

Price Breakdown Example

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

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.

How is Bid Transformation Helpful?

Bid transformation is useful for:

  • Helping you to fairly and consistently factor the differences between suppliers and their offerings into your awarding decisions.
  • Bringing dissimilar suppliers and their offerings into competition.


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.

  • Soft costs: costs based on perception, judgment, or experience; costs that are not quantifiable
  • Hard costs: quantifiable costs or expenses

Creating Terms in Bid Transformation

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.

Bid Transformation Example

  • There is an import duty of 8 percent on parts from Company A, A.K. Consultants.
  • There is an import duty of 5 percent on parts from Company B, Apex Corporation.
  • The ceiling price for a crate of parts is $10,000.
  • The bid decrement and buffer values are all $100.

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.

Key Differences Between Bid Transformation, Total Cost and Price Breakdown

Total Cost

  • Participants can edit cost components.
  • Participants bid on the item price and other cost components that contribute to the total cost.
  • The cost components are not hidden and all participants see the same bid-to-beat.
  • The bid decrement value is not adjusted.

Price Breakdown

  • In a standard RFP or Auction, you use line items to collect the pricing for complete items.
  • In an RFP with Price Breakdown, you add terms to line items to collect the costs that make up a line item.
    • Those costs are also called price breakdown information.

Bid Transformation

  • Participants cannot edit cost components because they are not visible to them.
    • The project owner can set up cost components that modify bids to arrive at a total cost; participants cannot see these cost components.
  • The cost components can be different for different suppliers (switching cost, import duty, shipping costs, custom terms).
  • Have only one cost component to bid on as the other cost components are not visible to them.
  • The bid to beat is adjusted for each participant according to the cost components you added.
  • The bid decrement value is adjusted for each participant, so that each sees a different bid decrement value.

For additional information on pricing strategies, please find the links below:

Creating Total Cost Events:

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.

Alternative Bids

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.

How are Alternative Bids Helpful?

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:
  1. Can participants create alternative pricing?

    Alternative Pricing allows suppliers to submit an alternate bid by providing a different value for term(s).

  2. Can participants create bundles?

    Participant Bundles allow suppliers to group the items in the event together as bundles to provide discount pricing.

  3. Can participants create tiers?

    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.

Alternative Bids Example

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.

Creating Events with Alternative Bids

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

Index Auctions

"If the commodity being sourced is sold against a pricing index, Index auction types are recommended."

What are Index Auctions?

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.

How are Index Auctions Helpful?

Index auctions are useful in the following cases:

  • You are sourcing a commodity that is subject to frequent price fluctuations, such as commodity oil, metals, and temp labor.
  • You want to compare prices to a baseline that you define.
  • Index bidding is appropriate when:
    • You have previously evaluated supplier bids against an index.
    • Price fluctuates significantly within your contract period.
    • The commodity is already tracked on a published index.

Evaluating Bids Against a Standard Index

A standard index helps you account for frequent price fluctuations. You use index bidding for standardized commodities that have established price indices:

  • Raw materials
  • Electricity
  • Natural Gas
  • Ferroalloys
  • Raw Steel
  • Diesel Fuel
  • Food Products
  • Jet Fuel
  • Lumber
  • Chemicals

Amount or Percentage Bidding

Which format will suppliers use to place their bids?


  • You can choose to have suppliers place bids in terms of a nominal (currency) amount above or below the index.
  • For example, $5 above the index value. If the index value is $50, the bid is $55.


  • You can choose to have suppliers place bids in terms of a percentage value either above or below an index.
  • For example, 5% less than the index value. If the index value is $50, the bid is $47.50.

Index Auction Example

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."

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