This is the first blog in a series discussing how transformational bidding can be used to negotiate complex tenders more effectively.
Focusing exclusively on price can be a recipe for disaster. I was reminded of this recently when the USB cable I purchased for less than £1 online damaged my wife’s mobile phone.
This focus on price is a common argument against using Reverse Auctions. However, there are numerous ways to prevent this from becoming an issue, including
All these approaches have one thing in common – they are done before the auction takes place.
Transformational bidding is a mechanism to capture non-price factors and directly include them into the auction. This differs from the other approaches mentioned above because these factors may be controlled by participants and changed during the auction. These factors can be attributed in the auction by a simple numeric value or a picklist converted to a numeric value or cost.
In this example, we will look at how transformational bidding could be used in a reverse auction for office cleaning services.
In the auction, we may want to penalise suppliers who will use 3rd party staff, and we can assign a cost of £800 per annum for any suppliers that do so. This could be based on additional costs/admin associated with this. Perhaps, in reality, you might deal with this differently although we just want to demonstrate the premise.
Additionally, we want to understand the 1 year and 3-year contract cost, and whether suppliers are prepared to offer a discount in exchange for a longer contract.
This leads us to set up our lot as follows:
There are six columns:-
During the event, participants can amend their basic price, and also the type of staff they plan to use and the level of discount they can offer. They get feedback on how all these factors affect their overall rank and can the adjust their next bid as a result.
Participant One can see that although their annual price is not the most competitive, and they do not offer a discount for the 3-year contract. However, they do not use 3rd party staff, and as a result are able to offer the best overall price.
Participant Two notices that they have been outbid on Suite 47 and Dojo House, however, they are winning overall for Unit 8. Despite offering a competitive annual price, and a hefty discount for the 3-year contract, they are penalised for using 3rd party staff.
Having this detail means that they can decide if (and how) they want to proceed. For example, they can continue to reduce their annual cost in order to win Suite 47.
By reducing their annual cost on Suite 47, they are able to move into the first position.
Participant Two can now focus on the Dojo House lot, and the other bidders must decide whether to bid again in order to regain the lead on the other two lots.
Transformational bidding offers a way of including factors other than price into your auction and RFQ events.
Bidding in this way can make the process more transparent give participants a clearer understanding of how competitive they are. This, in turn, means that hosts get the best offer for their requirements.