It’s important to follow best practice when tendering for the indirect category of supplies for Maintenance, Repair & Operations (MRO). But one size does not fit all businesses and it’s vital to make sure that your tender process reflects your real-life day-to-day needs.
Tendering is about the future, not the past − and we live in an era of rapid change. The tender process is also a highly effective way of market testing prices and the quality of service you receive from your MRO suppliers.
But drawing up an invitation to tender (ITT) is a complex process which some find daunting. You don’t want to make it so prescriptive that tenderers are put off. Equally, you need to make clear what you expect and what is important for your business.
A quarter of companies use online marketplaces to tender for MRO supplies, according to the 2020 Indirect Procurement Report, commissioned by RS with members of the Chartered Institute of Procurement & Supply (CIPS).
But whether you tender directly or through an online marketplace, it is vitally important to leave the door open for suppliers to innovate and offer new ways of meeting your MRO needs.
“What is the purpose of this tender?" asks Simon Fletcher, UK Sales Director for RS. "What is the goal for the customer? Is it purely to drive down the cost price? In that case, it’s a race to the bottom for you as a supplier.”
“If the customer is looking to find a supplier who understands their needs and can continue to support them as their requirements change in the future, that’s a whole different ball game. In these situations, suppliers need to show they can think progressively.”
“You have got to be very clear about what outcome you want from the tender process”Helen Alder, Head of Knowledge at the Chartered Institute of Procurement & Supply
Getting the basics right
Before you start, you need to have a clear picture of all the MRO needs across the business and to have captured all the purchasing processes being used. It’s an opportunity for process improvement − for example, by using digital solutions like e-procurement.
“You have got to be very clear about what outcome you want from the tender process,” says Helen Alder, Head of Knowledge at CIPS, “and there are several ways of approaching it.
“One is called the technical specification where you say, I know what I want – I want a washing machine. Then there’s the output specification where you say, I want clean clothes. The outcome depends very much on the question you ask.”
Engagement with all stakeholders across the business is also fundamental. The 80:20 rule applies – time spent understanding your internal needs will pay dividends when you start to evaluate suppliers. And you must have all-round buy-in if you are to successfully onboard a new supplier.
“Tendering is a great opportunity for process improvement,” says Alder. “Procurement is not there to tell people what they should be having, but to ensure that the process is fair and transparent.
“It’s about asking stakeholders the right questions. Procurement is there to challenge stakeholders, to get all the stakeholders in a room and say: ‘Is there an opportunity to do this differently?’.
Know your data
“If an organisation doesn’t know what it is doing today then how can it be confident about fulfilling future requirements?" says Fletcher. "When it comes to tenders, you need good quality management information.”
“Asking a supplier what they are going to do with your information is important but it isn’t the only question you need to put before them. Ask them what recommendations they will make on the back of that information too.”
But what if you don’t have all the data you need to put into the tender document? You might have a list of unit prices from your existing supplier, but what about details such as brand and quality?
This is where time spent drilling down into what is actually being purchased can pay dividends. Analysis by RS of a tender issued by a utility business came up with some facts that surprised even the customer.
The company based its tender on a basket of 4,000 items, the prices for half of which were unknown to the customer. But when RS analysed the previous three years’ consumption data, it found that only 80 of the 2,000 lines had actually been purchased in that time.
However, 10,603 other lines, that were not listed, had been bought during the three-year period, of which over 6,000 had been purchased only once and 92% had been bought five times or fewer.
What’s in your basket?
Across all industries, it’s been estimated that 80% of MRO purchases are one-offs, many of them unlikely to be repeated. By their very nature, purchasing of maintenance consumables tends to be reactive and random.
So why not create a sample of random items to price test? And you need to go further and ask suppliers what they would do if you requested items they don’t hold in stock. The challenge is to work out which products should be in the basket of items you are looking to price test.
As the utility company example illustrates, simply looking back over what your records show about the recent past may not give you the whole picture. When it comes to the one-offs, a more nuanced approach is needed.
“A basket of products can be used to determine supplier price competitiveness on planned, volume-type consumption, typically that used in stores; so long as the second part of the tender assesses supplier capability and service,” says Chris Cruise, Industry Sector Manager at RS.
“A basket of products can also be used for unplanned or reactive needs. However, it needs to use random samples of your own data, and most importantly have additional columns that assess, for each product, additional parameters, and be subject to a physical ‘purchase’ test during the tender process.”
If this approach is followed, real savings can be made across all types of MRO purchases, he adds. Of course, not all organisations are able to tender in the same way.
Open to innovation
“The approach to tendering is very different between the public and private sectors,” says Alder. “The public sector is heavily regulated and there is a legal requirement to tender. Private sector companies who have their own internal rules do tenders really well, but there are other industries that don’t even bother going to tender.”
“If you don’t tender you are not going to open up the opportunity for potential improvement. Tenders are ideal for supplier innovation, if using an output specification”Helen Alder, Head of Knowledge at the Chartered Institute of Procurement & Supply
It’s not an approach she would advocate. “If a company knows a supplier and has built a relationship, they tend not to want to tender. But when you take all that emotion away, you realise they will never find out what they could have gained from the process.
“If you don’t tender you are not going to open up the opportunity for potential improvement. Tenders are ideal for supplier innovation, if using an output specification.”
Fletcher agrees. He says companies should encourage suppliers to engage with their organisation about what they are going to need in the future. Suppliers need to be progressive in their thinking as well, he says.
“You want a supplier who can meet your needs in terms of digital capabilities, stock and the supply chain but other qualities are also important. Do they offer high quality own-brand products? Is the company known for its integrity and strong reputation? Are they innovative when it comes to products and services?
Alder advises that buyers should focus on total cost of ownership (TCO). “What’s the overall life cost of this thing that we want to buy?” she says. “And also think about the award criteria. That’s almost always a bit overlooked because it’s not always just done on price alone.
“You’ve got to make it clear what the winning criteria is, whether it’s breakdown of price, quality or, as more companies are doing, issues like sustainability.”
Transparency is key throughout the tender process and organisations must be open and transparent.
“Given the VUCA (Volatile, Uncertain, Complex and Ambiguous) context we’ve all found ourselves in, customers are looking for stability and reassurance. They need to feel confident that suppliers will be there for them this time next year – and the ones after that,” says Fletcher.
Tendering can be difficult. But, by working with a trusted partner like RS, it becomes an opportunity to make not just your procurement but your whole business more efficient and effective.
For more information on how RS can you support your business, visit here.