Three bids were collected and the cheapest one was selected. The decision was made quickly; however, six months later, delays caused by that supplier began to be debated.
At that point, two questions are asked: why was this supplier chosen and what were the other bids? The answers to both are often in no one's hands.
In this article, we explained how to compare bids, total cost analysis, weighting, and the decision record.
Table of Contents
Standardizing bids
The first step of comparison is reducing the bids to the same conditions. A comparison made without doing this is misleading.
Maturity difference is the first adjustment item; cash price and term price cannot be directly compared.
Shipping and delivery terms are the second item; the cost changes significantly depending on the place of delivery.
Currency differences must also be converted to a single unit; exchange rate risk must be evaluated separately.
If there are quantity differences, the comparison should be made over the unit price.
Total cost analysis
Purchasing price is only a part of the total cost and is often the most misleading one.
Minimum order quantity can generate the cost of holding excess stock. An offer that looks cheap ties up capital.
Quality differences return as scrap and return costs. This cost does not appear on the invoice.
Long lead times require safety stock, which is an additional cost.
When these items are taken into account, it is often seen that the ranking changes.
Non-price criteria
Some criteria that cannot be quantified must also be included in the decision.
The supplier's past performance is the most important; if scoring exists, it is used directly.
Technical compliance must also be evaluated; a cheap but inadequate product should never be purchased.
After-sales support and warranty conditions are decisive, especially in equipment purchases.
We discussed performance data in the supplier evaluation article.
Weighting
Weighting is done to turn different criteria into a single decision.
Weights should be determined before offers are seen; weights determined afterwards shape the outcome.
Weights can vary depending on the type of purchase. Quality stands out in critical raw materials, and price in consumables.
The number of criteria should be kept limited; multi-criteria models become complicated and go unused.
The resulting ranking is a suggestion; the final decision must still remain with humans.
Decision record
Recording the decision is the most skipped but most valuable step of the process.
The record should include which offer was selected, the justification, and the person who made the decision.
If the cheapest offer was not selected, the justification is especially important; this answers future questions in advance.
Unselected offers should also be archived; they serve as a reference in subsequent periods.
This record also provides protection in terms of internal audit and transparency.
Approval mechanism
As the amount grows, keeping the decision in the hands of a single person is unnecessary both for accuracy and security.
Tiered approval is a common practice; additional approval is required above certain amounts.
It is important for the approver to see the comparison table; blind approval adds no value.
Prolonging the approval time can lead to the expiration of quotation validity periods.
We discussed the approval workflow in the procurement approval workflow article.
Notification to suppliers
Providing feedback to unselected suppliers is a courtesy step that most businesses overlook.
This notification keeps the relationship alive and ensures responses to future requests.
Providing general feedback without sharing competitor prices is sufficient.
Sharing quotation details, on the other hand, causes a loss of trust and harms in the long run.
Suppliers who never receive a response eventually stop submitting bids, reducing competition.
Splitting the order
In some cases, the order does not need to be given to a single supplier.
Splitting reduces supplier risk and keeps alternative relationships alive.
On the other hand, it causes a loss of volume discounts and increases the operational burden.
For critical and single-source items, splitting is valuable in terms of risk management.
For standard items, a single supplier usually yields more efficient results.
Post-decision evaluation
Finalizing the process after the selection is made is the most crucial stage for learning.
When delivery takes place, it should be recorded whether expectations were met.
This record feeds supplier performance data and improves future decisions.
Decisions that turn out to be wrong are also valuable; they show that criteria need to be reviewed.
Over time, this cycle naturally raises the quality of decisions.
Points to pay attention to
Looking only at price is the most common and expensive mistake.
Determining weights after seeing the proposals also manipulates the outcome.
Failing to document the decision rationale leaves you vulnerable in subsequent audits.
Prolonging the process jeopardizes proposal validity and the operational schedule.
The process is carried out in the procurement module and linked to an order.
How to build a comparison table?
A good comparison table makes the decision visible at a glance and shortates the debate.
Criteria are placed in rows and suppliers in columns. This layout instantly reveals missing information as well.
Corrected unit prices should be in the first rows; raw bid prices can be kept in a separate row.
Next, tangible conditions such as delivery time, payment terms, and minimum quantities are listed.
The final section includes performance scores and subjective evaluations.
It is important that the table does not exceed one page; long tables are not read and decisions are made by intuition again.
Final round negotiation
After the comparison is completed, a final round meeting often provides additional gains.
Competitor prices should not be shared in this meeting; instead, your own target conditions are communicated.
There is room for negotiation outside of price as well; term extensions or delivery including shipping are valuable gains.
Better terms can be obtained in exchange for a long-term volume commitment.
Conditions changed as a result of the meeting must be entered into the proposal record; verbal agreements do not constitute a basis.
This round should not be prolonged; as the process drags on, the operational schedule comes under pressure.
Frequently asked questions
Is the cheapest proposal required to be chosen?
No; as long as the rationale is documented, a different proposal can be chosen, and this is often the right choice.
Can the comparison table be generated automatically?
The table can be generated when proposals are entered into the system; we determine the weighting structure together.
How long should unselected proposals be stored?
It is recommended to keep them for a few periods; they are necessary to see price trends and use in negotiations.
How are proposals collected?
Through a structured request process; RFQ process you can check out the article.
Proposal comparison is the most critical and rushed step in procurement. A few extra minutes of effort prevents months of problems.
First, reduce proposals to the same conditions; comparisons made without maturity and shipping adjustments are misleading.
Determine the weights before the proposals arrive; weights determined afterward shape the outcome.
Be sure to write down the justification for the decision; this record protects you, especially when the cheapest offer is not chosen.
Archive unselected proposals as well; they are your strongest leverage in the next period's negotiations.
By consulting the EQLEM team you can design your proposal evaluation process.