If you’re a business looking to attract suppliers, there’s a lot to consider before you send things out to tender. The process of finding and choosing the right supplier for you and your business is more than simply weighing up varying costs and opting for the cheapest. Rather, it’s dependent on a range of factors including value for money, quality, reliability and service which you’ll weigh up based on your business’ priorities and strategy.
For those operations managers and business owners of SMEs in need of advice, this introductory guide will seek to provide some insight into the process, including what to look for in a supplier, the necessary responsibilities and legal requirements, along with the various types of tender for businesses to send out.
Define the needs of your business
You won’t know who to look for if you don’t know exactly what you require. Documenting your requirements in detail helps both at the outset and later down the line when you need to compare your notes with the vendors’ materials to see if there’s a good match. Remember: it’s important to be sure of your business needs and what you want to achieve by buying rather than simply paying for what suppliers want to sell you.
In drawing up your needs, it may also clear up how many suppliers you’re likely to need. Having a choice of sources is a good idea; if things go wrong you have other sources to turn to. Compare that to having only one supplier; you’ll have nowhere to go if things go awry.
Things to look for in a supplier
You might be tempted to go on instinct when you’re considering who to go for. And while going with your gut may not be completely inadvisable, there are some more concrete traits you can rely on when looking for a supplier.
Does the supplier have a trustworthy reputation that you can look into? You don’t want to end up doing business with someone who’s unreliable and always unavailable when you need them most.
Guaranteed quality is a near-universal requirement, and something you’ll likely need from all suppliers. Ideally, they’ll be consistent in their standards; if you have a shoddy product, customers will associate that with you as opposed to your suppliers.
Value for money
It’s important to recognise that a low price doesn’t always equal the best value. If you want the best, you need to decide how much you’re willing to pay for your supplies and balance it with reliability, quality and service.
Clear, transparent communication with your supplier is key. If they’re the type to shy away from talking to you, then that’s probably not a good sign. You need someone who will deliver on time and give you plenty of warning if they can’t.
Do your potential suppliers have a healthy cash flow to provide what you want and need? Complete the appropriate background checks to ensure they can keep things afloat and provide for your business. If a supplier happens to go out of business whilst under contract with your business, you could be left out of pocket.
Define your process for selection
How will you find suppliers you’d like to work with? It may be that you publish your requirements in trade publications and call for bids, or be more direct and approach companies you deem appropriate for proposals and estimates. Give yourself a period of time to conduct this process and appoint the right members of your team to review the proposals; after this, they can recommend a short list of suppliers to choose from.
Firstly, a business must identify the tendering processes they are authorised to seek – determined by the size of the tender as well as the sector the business serves.
In the public sector
Public sector tendering processes must be shared through the OJEU (Official Journal of the European Union) if they are valued above a certain financial threshold:
• Central Government – £118,133
• Other public sector bodies – £181,302
• Small lots – £65,630
These thresholds are for the full contract term of the tender. If the thresholds are exceeded, the business has to go out to tender publicly or via a framework.
In the private sector
Most private sector businesses publish tenders by invite only. They have the option to publish this online though not through the Official Journal of the European Union (OJEU).
Drawing up a shortlist
When it’s time to write up a shortlist of suppliers you can see yourself working with, you might want to set some criteria, such as:
– Can they deliver as and when you want goods?
– Are they financially stable to do so?
– Are they a long-running and established company?
– Is there anyone you can ask who has used them and can recommend them?
– Are they on any approved supplier lists from trade associations or the government?
Choosing a supplier
Once things have been whittled down to four or five suppliers, now is the time to approach potential suppliers and ask for a written quotation. Usually, you’ll give them a clear brief summarising what it is you need, how often you’ll need it and the level of business you hope to place. This is also the time to ask about discounts for long-term or high-volume contracts.
When you have the quotations, compare your potential suppliers according to the criteria that matter most to you; for example, the quality of their product may be an important factor, while something like their location might not particularly matter to you.
Additionally, double check that it’s the supplier who will be doing the work. Some suppliers outsource work to subcontractors, which is all well and good, but you’ll have to investigate the subcontractor and weigh up everything once more to show whether they’re the right fit for you. For this reason, it’s wise to meet a potential supplier in person to see how they operate, which also encompasses the ethical practices of their supply chain too. After all, your business may be judged on the labour practices of those you work with.
Lastly, negotiate the terms and conditions with those you’ve decided to work with. Ensure that all parties are happy with what is being negotiated and ask the supplier to clarify any discounts offered, along with payments terms, and keep these pieces of information close to hand.
The various types of tendering
Open tendering lets anyone submit a tender to supply the goods or services that are required. Usually, this takes the form of an advert placed to give notice that the contract is being tendered, offering an equal opportunity to any organisation to submit a tender. On larger projects, there may then be a pre-qualification process that produces a short-list of suitable suppliers who will be invited to prepare tenders.
This type of tendering has been the subject of criticism since it attracts interest and actual tenders from a vast number of suppliers, some of whom may be entirely unsuitable for the contract. This can waste a large amount of time, effort and money as a result. That said, it also offers the most competition and has the advantage of allowing new or emerging suppliers to secure work.
Restricted tendering allows suppliers to submit tenders by invitation. A pre-selected list of possible suppliers is prepared, usually determined from their reputation and track record, to be suitable for a contract of the size, nature and complexity required. This type of tendering can instil greater confidence in stakeholders since their requirements will be satisfied and serves to eliminate the wasted effort that open tenders sometimes lead to.
Restricted tenders are used for procurements where market analysis has shown a large number of bidders are likely to participate. It’s also beneficial to use this procedure where the number of bidders can be reduced at the selection stage based on their capacity, capability and experience to perform the contract.
Negotiating with a single supplier may be appropriate for highly specialist contracts, or for extending the scope of an existing contract. It can reduce the costs of tendering and allow early contractor involvement, but it also reduces the competitive element too. Keep in mind that unless the structure of the negotiation is clearly set out, an adversarial atmosphere may develop, even before the contract has been awarded.
Negotiated tenders with OJEU allows institutions to negotiate directly with suppliers in order to award a contract. Note that it’s a procedure which should only be used in limited circumstances, for example in cases of extreme urgency or when an open or restricted procedure has been discontinued.
Negotiated tenders without OJEU should only be used in very exceptional circumstances where publishing a call for competition (e.g. Contract Notice) is not possible. This is where no tenders, no suitable tenders, no requests to participate or no suitable requests to participate have been submitted for a previous Open or Restricted tender exercise – provided that the initial conditions of the contract are not substantially altered.
Through a framework, public sector organisations have the option to do a mini competition with pre-approved suppliers or issue a direct award to an approved supplier who is already on the framework. This process ensures all relevant quality and financial checks have already been conducted and all suppliers on the framework have been vetted and are an approved supplier.
Competitive dialogue tendering allows organisations to negotiate proposed solutions with bidders, opening up cross-border markets by encouraging bidders to discuss possible solutions. It can be highly beneficial for organisations who are in need of greater flexibility because of a project’s complexity or risk, or where procedures may not deliver expected outcomes.
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