Who is doing lowest cost tendering?

Today we're going to talk about lowest cost tendering. You know, that activity which is so unproductive, inefficient and wasteful that we've all stopped doing it; although we all have it done to us and we all know someone else who is still doing it to their suppliers (and suffering the consequences). In fact we all know so many people who still do it that it turns out most people are doing it most of the time. Hang on a mo', if most people are doing it how come none of them is us?

There may be a perception issue here. I think a lot of people are genuinely trying to move away from lowest cost tendering and even believe they have succeeded, but they don't really understand the impact of what they are actually doing.

They start by trying hard to screen their suppliers to shortlist the best. They send out questionnaires, ask for performance data and references, undertake office visits and interview directors and staff. They don't appear to understand how time consuming and expensive this is for their suppliers; lowest cost tendering was cheap by comparison! But of course, once appointed there will be plenty of work to justify the costs – although suppliers have to understand that there are no guarantees of work.

Once they have the shortlist, they can move to final selection on, well price actually, after all they do have a 'list of equivalent suppliers'.

Equivalent? Oh come on, I did this when I last bought a car. They may all have had four doors, a boot and a two litre engine, but after that selection is all about the balance between price and the levels of equipment, both standard and optional. Plus of course reliability, build quality and reputation.

If we didn't understand this, we'd all be driving around in Lada's (no offence intended Dad). The truth is most of the people who make the decisions have little or nothing to do with the outcomes and so they do not appreciate and certainly do not value, the skills and capabilities on offer. They remain, however, convinced that they have a new and better selection model, which is certainly nothing to do with lowest cost tendering.

I think a lot of people are genuinely trying to move away from lowest cost tendering, but they don’t really understand the impact of what they’re doing instead.

There are some other perspectives which should be aired. Some people are actually, honestly, really moving away from lowest cost tendering. Unfortunately their enquiries come from the same people they always came from and look almost identical to the old enquiries. No wonder their suppliers still believe they are being asked for the lowest cost.

There's a big gap in the communications programme (the what?) which should have cleared up this misunderstanding. Then there are those following these paths, but hedging, half hoping their suppliers might give them a cheaper price (and a buyer's bonus to boot. Are your buyers performance measured on the savings they achieve?).

By the way, I'm assuming that everyone appreciates that lowest cost tendering fails because it fragments the process and forces suppliers to make value judgements which are destined to be wrong, as they do not have the necessary information to properly evaluate the consequences of their isolated decisions. Not that these are the only problems. However, we will have to come back to them another day.

For now, let's just take an honest look at our own part and make sure our intentions and actions are aligned and communicated.