Selecting Templates and Event Considerations

Objectives

After completing this lesson, you will be able to:

  • Describing Multi-Stage Sourcing
  • Understand Key Aspects of Different RFP and Auction Templates

Multistage Sourcing

Multistage sourcing is the act of combining multiple events into a continuous sourcing process.

  • This enables project owners to narrow down the list of suitable participants at each stage.
  • A multistage event can also help sourcing professionals gather information about market conditions and manage potentially large numbers of suppliers and large amounts of bid data.
RFI to RFP to Auction

Auctions can be run as standalone events or following an RFP. The RFP can be used to assess the marketplace.

A common use of a multistage event is to begin with an RFI, which serves as a prequalification stage. Only suppliers who pass the RFI stage are allowed to view and bid in the following event, which often is an RFP or an auction.

Benefits of Multistage Sourcing

  1. There's no limit on the number of stages that can be included in a multistage event. You can decide on multiple events after one stage is complete.
  2. Multi-stage sourcing mimics the natural sourcing process. To mimic their current sourcing processes, project owners can combine any number of different event types.
Hint

If you know from the beginning that you’ll be running multiple stages, you must communicate this to suppliers at the first event.

Multi-Round Bidding in Guided Sourcing

Multi-round bidding is an exclusive feature to Guided Sourcing which allows project owners to include/exclude suppliers and items between rounds and compare pricing evolution across rounds.

To trigger a new round, enter your event under the review responses status. Choose the Options menu and selectCreate new round.

Choose More > Create new round. You can add or remove items or suppliers.

You can include or exclude specific items or suppliers for your next round. You may feel comfortable with a supplier’s bid for a specific item, but expect the other items to have better prices in the next round.

To use multi-round bidding functionality, the Enable multi-round bidding rule must be turned on in the event rules. Reference the complete documentation on working with multi-round events for the full procedure.

Auction or RFP

If you must include competitive pricing through line items or lots in the event, an RFP or Auction is recommended.

RFIs are helpful, but can't be competitively formatted. When competitive pricing is required within an event, use an auction if price is the main factor when awarding the business opportunity. If price isn’t the most important factor, a closed RFP with event rules set to improve bids and allow suppliers to see ranks or bids can be used.

Use this grid to determine the appropriate method of collecting bids based on the available information.

 NegotiateRFPAuction
# of suppliersFew2 or more2 or more
CompetitionLowLow to HighModerate to High
Supplier RelationshipStrategic or PreferredPreferred or CompetitivePreferred or Competitive
Price VariancesHighHigh to ModerateLow

The ideal auction has more than two suppliers, a high level of competition among the suppliers and a low price variance, allowing them to outbid each other easily during the auction.

Auctions are best used when:

  • Contractually Available: Contractual restrictions can severely lessen or eliminate an opportunity’s attractiveness.
  • Commercially Attractive: Business that is commercially attractive maximizes the suppliers' interest and drives the most competition.
  • Competitive Supply Base: Volume must be transferable between suppliers to spur competition. A minimum of two suppliers are needed.
  • Compressible Margins: To reduce pricing, the margins of the product or service must have compression.
  • Clearly Defined Requirements: The parameters of the scope of work must be clear for the incumbents and for new potential suppliers.

Auction Selection Process

Considerations for Selecting the Appropriate Strategy

Market conditions and prior sourcing events drive auction selection & strategy.

The "right" auction is one that maximizes competition. The different auction formats and auction configuration options can maximize the competition and the potential for savings.

Step 1: Buyer Considerations

Am I buying or selling?

  • If you're buying, choose a Reverse Auction.
  • If you're selling, choose a Forward Auction.

How is business awarded?

  • By region
  • By business unit
  • By customer segment

What is the strategy for the event?

  • Consolidate supply base
  • Reduce price/enhance competition
  • Keep incumbent/award new supplier

Step 2: Supplier/Market Considerations

How long has it been since the last negotiation, and is there any historical data?

How attractive is the business? How many suppliers will be invited?

Will the price rise or fall?

How many participants will I have; is there enough competition to have a viable auction?

Supplier capabilities:

  • Geographical scope
  • Quality Certifications
  • Are there any new suppliers?

Step 3: Auction Format

Based on market conditions, do I want to run a Standard Auction, a Dutch Auction, or a Japanese Auction?

Step 4: Timing and Bidding Rules

Must Pre-Bids be used?

Are Tie Bids permitted, or will it go into overtime?

Step 5: Market Feedback (Visibility)

Based on market conditions how much market information do I want to reveal to other suppliers in the event to drive competition?

Show Rank or Lead Bid or Both, and so on.

Step 6: Pricing Terms

Must I collect pricing on terms such as shipping, taxes, import duties, and tooling costs?

Are the pricing terms equal across suppliers and do I want to reveal those terms to suppliers?

  • If pricing terms are equal across suppliers, select a Total Cost Auction template.
  • If pricing terms are not equal, select a Bid Transformation Auction template.

Step 7: Market Pricing Strategy

Do I have ceiling, historic, or reserve prices?

  • Ceiling price: The highest point at which goods and services can be sold.
  • Historic price: What did we pay previously?
  • Reserve price: A minimum price that a seller would be willing to accept from a buyer.
  • Individual starting prices: Must suppliers have specified prebids so that they can’t stray from quotes used in an RFP or before the auction?

Summary

If you're buying, choose a Reverse Auction. If you're selling, choose a forward auction.

If pricing terms equal across suppliers and those terms must be visible to suppliers, use the Total Cost Auction template.

  • If no to equal pricing terms, select a Bid Transformation Auction template.
  • To itemize terms, use Price Breakdown templates.

If the commodity being purchased is sold against a pricing index, use an Index Auction by Price or Percentage.

Reverse Auction is the most commonly used, standard template for buyer auctions.

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