The Tender Trap: understanding the supplier's perspective
Having been a procurement practitioner in one form or another for over 20 years, and experienced both sides of the equation, I've gained a useful insight into the typical processes and experiences for both procurement professionals and suppliers. Unsurprisingly, the relationship is often conducted at arm's length from beginning to end, which can be conducive to fair practice but also risks creating a damaging vacuum between the two parties. For procurement professionals, understanding the supplier's perspective can have an overwhelmingly positive impact on the process and outcome. For the supplier, working with a team who understands their position can help them make the best decisions and put their best proposal forward. RFXs are a blunt instrument in themselves and can even be damaging when used in isolation. Seeing the bigger picture could help to transform the experience and value for everyone involved.
Quantifying the benefit
Suppliers have to quantify a few things before responding to any invitation to tender:
Responding to a tender is not free. In fact, responding to a tender can be an expensive business when you consider the amount of time, effort and energy that it takes to pull it together to show your proposal in the best possible light. After all, one of the biggest issues we have as procurement professionals is when a bidder appears to be putting together a 'vanilla' response without considering the stated requirements.
The cost of a tender has then to be weighed against the potential benefit, both financial and otherwise, should they be successful in their bid. Every potential supplier will have their own metrics, but their considerations will be balanced against any overheads. That includes all of the costs associated with presales overheads to respond to any proposal requests.
Odds of success
Responding to tender requests can be a bit of a numbers game. When a supplier is in a tender response situation, they have to estimate their chances of winning the work. There are a large number of factors to consider: is the potential customer asking for something that is a particular strength? Am I just one of 100+ bidders being evaluated? Does my offering have a strong selling point that can be quantified through the questions contained in the tender documents? Is the potential client looking for the lowest possible price or a value submission?
Many RFPs aim to push much of the risk onto the bidders as part of the process. The supplier has to assess whether this is something they are able to accept for their business and ask: if I go in at rock bottom price to win the work, will I have the capacity to undertake more profitable work? Will I have to ramp up capacity? Will I have to take on new staff/ logistics/ training etc? Essentially, winning work could have a deleterious effect if the risks outweigh the benefits.
Customer of choice
All customers are not equally valuable to a supplier in non-profit terms. If a customer has a poor track record of payment or has onerous contract terms it can turn potentially profitable work into a significant business risk very quickly. If a customer is difficult in terms of relationship, has poor communication or has a bad reputation, they are not necessarily a customer of choice and, as such, may not warrant the effort that goes into servicing their account.
Poorly written documentation
When questions are poorly thought out, ambiguous, repeat the same question with minor nuances, don't make sense or, as is too often the case, are simply unclear as to what the client is looking for (or how it will be evaluated), it takes far longer to respond. This has to be factored into the risk profile.
Communication is key
When a supplier receives an 'out of the blue' request they will not have any frame of reference to give the best possible response. Their first reaction is likely to be 'Why didn't they talk to me about this first?' Their second reaction is likely to be 'If they've not talked to me about this already, how do they know I have the capability?' Their last response is likely to be 'If they've not talked to me about this, what kind of customer relationship will this be?'
The supplier will need to decide whether to put forward a bid, or to decline and use their sales budget to pursue direct engagements with customers where there is a perception of open communication.
Talk to your bidders openly and honestly about what you are looking to achieve by running an exercise; ask for their input, bring the business stakeholders into communication with the bidders, hold supplier days and communication opportunities – allow the bidders to become interested in your business needs. Warm them up to the real opportunities that your business could afford them. Importantly, show them that this is not a paper exercise to simply ensure you that your incumbent supplier is in line with the market before you roll-over their contract.
Suppliers need to know that you are a customer that will add value to their business needs, too. Even the smallest contracts can become partnerships where the value relationship is mutual.
To quote Henry Ford: "If you always do what you’ve always done, you’ll always get what you’ve always got." Before you reach for your RFX template, take a moment to consider if what you've 'always got' has, in fact, been the best supplier to meet your stakeholders' needs or just the supplier most willing and able to complete your paperwork.
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EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”