Edmund Zagorin, Ken Desowitz, Brent Maas, James McGraw
The relationship between vendor participation and value creation
As procurement leaders, we tend to favor facts and data over personal opinion as reasons to make award decisions. Like hiring the best candidate for an open position, awarding a contract to the best vendors is a balancing act, factoring in requirements that are often in tension with each other.
Experienced hiring managers often use the term “best fit” when describing what makes a candidate the right hire. This means the candidate has the desired level of experience (but isn’t overqualified), will be satisfied with the offered salary (but may desire room to grow), and can execute against the job responsibilities with competency and experience.
Similarly, procurement leaders know that awarding a contract to a vendor is an exercise in Goldilocks’ porridge-tasting: not too hot, not too cold; just right. Sounds complicated? That’s because our brains aren’t built for it. Humans are great at optimizing (e.g. for a single evaluation criteria) because keeping score on one criteria is pretty uncontroversial. If we are only comparing options on price, then it’s simple to see which option saves the most money.
It’s not always the cheapest vendor (although savings are desirable). It’s not always the vendor with the most experience (although experience is desirable). It’s not always the vendor with the most certifications, the best equipment or the most references. It’s the vendor that, given the budget, the timeline, the technical specifications, is simply the best vendor for this contract.
Unfortunately, in the real world where “you get what you pay for” procurement teams may need to make sure that the vendor is truly responsive before looking to either a lowest price or even best value comparison. In other words, we must *first* ask ourselves: does a vendor truly qualify as responsive? Making sure that this questions gets answered can help us avoid the much bigger (and longer-lasting) operational headache of sub-optimal vendor performance.
If we’re really managing our teams towards this idea of “best fit” for a lowest responsive vendor, then it is super important to track metrics that align with improving our award optionality, both on price, qualification and performance. What are some metrics that we can track that will help with this?
1. Median Competitiveness
Competitiveness is a simple metric to track, and it’s a great way to highlight the value that your procurement team is adding through the “responsive vendor” qualification process. Simply take the total number of vendors responding to your opportunities as the denominator and the total number of vendors awarded as the numerator. For example, if over a six month period your team had 42 vendors responding to 12 contract opportunities (each of which was awarded to a single vendor), then the median competitiveness of your bids is 3.5 vendors responding per opportunity. Based on Bid Ops analysis, if your median competitiveness is above 3, your team is doing a great job engaging your vendor community and getting better deals for your stakeholders.
2. Median Newcomers
Many procurement teams face a problem that we call “the usual suspects”. This means that even for bids with more than 3 vendors responding, it’s the same vendors every time. While you may think, “well that’s not so bad, they all know how to do business with entities like us”, the problem is that these vendors are so comfortable with their marketplace that they are not truly motivated to compete. Vendors that run into the same 3 or 4 competitors for every one of your contract opportunities will often not be motivated to give your stakeholders truly great value. For some categories, “the usual suspects” are fine (and for certain speciality categories there may only be “the usual suspects”). However, at scale the lack of new blood in your vendor portfolio can put an unfortunate ceiling on the amount of value that your procurement team can create through running competitive processes. Thus, it’s important to measure the net number of vendors that submit bids for your contract opportunities, regardless of whether or not they are awarded. This is a simple ratio between net new submissions and the total number of bids submitted. For example, if 7 new vendors submitted bids out of a total 42 bids, then your Median Newcomers would be .16 (e.g. 1/6).
3. Median No Bidders
The idea of tracking the number of bidders versus the number of bidders that “No Bid” isn’t new, but done at scale it can provide useful insights for increasing both Median Competitiveness and Median Responsive Bidders. Using Bid Ops internal analytics, we have a ranking for a vendor’s most common “No Bid” justifications:
1. Not enough time to submit a bid
2. Specifications written in a manner that they cannot meet (or believe is disadvantageous)
3. Person whose job it is to respond to public sector solicitations is OOO
4. Vendor registration process is too difficult or complex to access the relevant documents
By tracking and ranking these reasons internally, your team will have data to communicate to stakeholders the value of getting a bid out on the street earlier and leaving it open for longer. Your procurement team will be able to communicate with confidence the value of issuing an addenda to make a solicitation more competitive. Measuring median responsive bidders can be challenging because of the lack of collecting “No Bid” justifications, however the ratio is simple: “No Bids”/actual bids. For example, if you had 42 bid submissions and received 10 “No Bid” reports then your Median Responsive Bidders would be .238 (e.g. 10/42).
Now here’s what’s mind-blowing: success for this metric is actually getting this number above 1 (e.g. having some indication of why a qualified vendor didn’t bid is a good thing). Why is this? Because they represent part of the competitive landscape for your contract opportunities, and with slight changes in process they could participate in the future. The fact that they were sufficiently aware of your opportunity to indicate why they “No Bid” in principle means that they could participate in the future. Awesome public procurement teams will work to increase their market footprint year over year, and having 1.25-1.5 Median No Bidders is the perfect roadmap to make this possible.
Going beyond the “usual suspects”
Getting serious about increasing vendor participation isn’t easy. It means thinking beyond your typical Contractor Fair, Reverse Trade Show or Local Vendor Event. It means being strategic about making markets for your contract opportunities beyond “the usual suspects.”
Fundamentally, it means creating and running next-level discovery, engagement and qualification processes – and doing all this without creating more work for your team. Culturally, being smart about vendor engagement *only* works if it involves your team doing *less* busywork, getting *fewer* distracting vendor emails and getting real-time data to measure success. Solving this problem – increasing productivity in running a bid – is exactly why we created Bid Ops.
Bid Ops public sector teams easily deploy automated vendor engagement campaigns, get forecasts on vendor responsiveness and can see analytics associated with their opportunities at scale, including measuring Median Competitiveness, Newcomers and No Bids. Curious?
Sign up to see if you qualify for our Private Beta at bidops.com/privatebeta