What is Competitive Bidding?
Competitive bidding allows companies to find the goods and services they need for the best possible price. Through the competitive bidding process, an organization can solicit bids from contractors, suppliers, or vendors to get the raw materials, equipment, and other products needed to support key business functions and serve customers.
There are two types of bidding in procurement: open or competitive bidding, and closed (“sealed”) or noncompetitive bidding. Competitive bidding takes place usually through the RFx process, which is detailed below. In contrast, some companies will also use noncompetitive bidding. Noncompetitive, closed, or sole source and single-source procurement take place when the procurement team selects a company from which to buy or restricts the bidding process to a limited number of pre-selected suppliers.
Read more to learn how competitive bidding works — as well as when to use competitive vs. noncompetitive bidding, and tools to help you get started.
The competitive bidding process
From the buyer’s perspective, the competitive bidding process begins with the identification of a business need. This prompts the procurement team to create an RFI, RFP, or RFQ. An intelligent sourcing solution streamlines this process from days to just a few clicks.
[Read more: 5 benefits of a streamlined RFP process]
The RFx (most likely an RFP) will explain to potential bidders what the bidding process entails, as well as the contract terms and clear guidance on how proposals should be presented. It will detail the nature of the need with a Statement of Work and a clear account of how the bids will be evaluated, including the criteria for evaluation and the method for grading proposals. The RFP will also include a deadline by which interested parties must submit their bids.
Once bids have been collected, the procurement team will evaluate each bid. In this process, the buyer might choose to interview select vendors to ensure they’re finding the best possible fit.
The RFP process is the first opportunity to begin building a great supplier relationship: as a result, companies should spend time in the evaluation phase to find the right partner. Check references and ask for benchmarks to gain a deeper understanding of the item you’re buying, as well as the company supplying it. If it’s feasible, try to visit the supplier’s facilities to do an inspection—even bring colleagues from other departments. All this information helps you make a better choice and will help build a richer relationship with your supplier.
Finally, the buyer must select a partner and sign an agreement, as well as let other participants know their bid wasn’t selected.
Advantages of competitive bidding
Competitive bidding allows buyers to benefit from competition among potential suppliers. Any company is invited to submit a proposal, which means organizations are incentivized to put their best offer forward and provide competitive pricing. It also makes the process more transparent: rather than closing bids to a select few, the wider market can see demand and price their goods accordingly.
For buyers, competitive bidding may not result in signing on with the partner who offers the lowest price. It will, however, allow buyers to find the partner with the best value. Intelligent sourcing solutions like Fairmarkit allow buyers to work with diverse suppliers, track analytics, and find sourcing partners that are in it for the long term.
For suppliers, competitive bidding allows organizations to execute proposals that they know they can perform successfully. Well-written RFPs allow suppliers to self-select the opportunities for which they are best suited. This empowers them to save time and energy they would have used chasing new business — and instead invest in their existing relationships.
Of course, there are instances where noncompetitive bidding might be preferable. Companies that have an urgent need tend to use single-source procurement. Noncompetitive bidding, however, can result in higher costs. Companies don’t have the advantage of comparing proposals between different vendors, and may end up working with a supplier who is unfamiliar.
How to get started with competitive bidding
There’s a common misconception in the world of procurement that competitive bidding is time-consuming and labor-intensive. That makes sense: historically, the competitive bidding process took quite a number of steps to complete.
However, e-procurement solutions streamline the RFP process and make it easier for procurement teams to manage the competitive bidding process. Automation allows Fairmarkit to eliminate friction points, so buyers can get bids with fewer steps and in less time. Buyers can quickly access a vast pool of suppliers and vendors, cutting down on painstaking manual effort expected from an RFP event.
Likewise, by combining RFQ and RFP capabilities into one, consolidated platform, Fairmarkit provides a central source of information on sourcing activity. Procurement teams gain visibility into spend activity, making it easier to optimize each sourcing event and find the best partners for all your business needs.
For more advice on competitive bidding and intelligent sourcing, check out Fairmarkit’s blog, The Source.