E-commerce websites and platforms can be utilized by suppliers as a channel for obtaining major contracts. It is critically important to develop an appropriate strategy for working on these platforms, taking into account all the costs carried by suppliers while working on these platforms.
Before making the decision to participate in auctions or RFP events, suppliers are advised to take a critical look at the initial price of the contract and, if possible, assess other bidders. Otherwise, why would the supplier participate in the event, winning which would deliver an unprofitable deal?
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The practice of collecting guarantees from bidders (ensuring bidding and securing contract execution) is widespread worldwide. In order to secure participation in the bidding event, the supplier may be required, firstly, to withdraw a certain amount of funds from his turnover, and secondly, to spend a certain amount of labor resources, for example, on obtaining a bank guarantee. Enforcement of the contract for the supplier is an even more costly process. Obtaining security for a major contract freezes a part of a supplier's capital and can affect the supplier's business.
Before participating in bidding with security, it is highly recommended for the supplier to include in the contract price a yield on frozen funds equal to or greater than the return on equity.
Types of bidding activities
Today, electronic trading platforms offer dozens of various bidding events, which are varieties of auctions, RFx, etc. General principle: the more complicated the event, the higher the labor costs for preparing the bids, and hence the overall cost of participating in the event.
Complex multi-stage activities are the most costly for the supplier. For example, participation in a complex tender with a range of criteria for selecting an awardee will require lengthy preparatory work to study the evaluation mechanics, explore tender documentation and prepare competitive commercial proposals.
RFPs may be preferable for suppliers, since the organizer of the event may even decide to select a supplier that, according to formal criteria, has lost. But here there is also a risk of unjustified costs if the goal of the purchaser is just to select his supplier but not to extract the maximum benefit from the transaction. Sometimes the purchasers even utilize automatic contract prolongation, which signifies that there should be implemented a convenient contract management solution instead of automatic contract prolongation practice.
A framework agreement, which assumes that the supplier will be provided with an order for a certain period, may also require certain efforts from the supplier. It may contain many questions that require proof of the supplier's qualifications and credibility. This may include information that is not typical for most similar activities, for example, information about previous contracts, financial statements, and production capacity.
Auction and request for quotations are among the least labor-intensive activities. A significant disadvantage of the auctions is that the price is the only criterion for selecting suppliers which can negatively impact the outcome of bidding (since other criteria besides the price are not considered).
Suppliers should be careful with their participation in re-bidding activities. The purpose of such activities is the maximum price reduction.
The supplier can assert its rights. For example, sometimes the bidding is only a form of obtaining a profitable deal for a purchaser and tender documentation is prepared for a specific supplier. In this case, every possible violation may be subject to review by the supervisory authorities.
Platform as a channel for obtaining major contracts
Online platforms become an effective channel for suppliers to obtain major contracts. Thus, they not only cover the costs of participation for the supplier in the purchasing activities but also enable them to get better results.
Of course, the supplier can count on luck while operating on such electronic trading platforms. But if the suppliers want to get a better outcome, it is necessary to conduct appropriate preparation by exploring all the terms of using the platform, the rules and regulations, evaluating the volume and quality of the auctions conducted there, assessing potential purchasers, taking into account the capabilities of competitors.