Monday, January 3, 2011

Supplier Qualifications of the Buyer

Just as Buyer’s may qualify a Supplier, as part of the sales process many Suppliers will qualify the Buyer as a potential customer. Suppliers will qualify the Buyer to make sure they can pay the bill if they will be extending credit to the Buyer. Supplier qualification’s are also used to determine their probability of winning the business and establish what it would take them to win the business. 

Responding to a major bid or proposal can cost a Supplier a significant amount of time, money and resources.  Before they make those investments they will do several things:
  1. Evaluate the relationship with the Buyer by looking at past history with the Buyer, any existing business and their perception of the relationship they have with Buyer’s decision makers.
  2. Try to obtain information about the specific procurement that helps understand the leverage they may have and their chance of winning by seeking to uncover the Buyer’s goals, budget, schedule, importance.
  3. Try to understand their potential competition for the work and leverage by looking at:
    1. whether they may have helped define or create the specifications or RFP;
    2. whether they may have been specified by a customer;
    3. who the competition is and how aggressive they will be;
    4. their ability meet the contract requirements.
  4. Analyze whether winning this business will provide them with other opportunities where pricing aggressively on this can provide an annuity stream of business or the ability to generate more income from the business by up selling or cross selling.

If the Supplier is successful in getting much of this information they will have a good idea of what it will take for them to win the business if they want to go after it.

If their assessment is that they don’t have a high probability of winning the business or the cost to win the business would be too great, they may opt out of bidding or proposing. They may also provide what I call a “courtesy” bid or proposal. Rather than tell the Buyer that they are not interested (which may prevent them from being asked to bid in the future), a courtesy bid or proposal is not aggressively try to win the business. They spend a lot less time preparing it. The one thing they make sure of is at the price they quote, they will make their desired profit. They may not need or want the work, but at that price they would be willing to do it.

There is a balancing act that must occur in terms of managing the information that you disclose to the Supplier.  The same information the Supplier wants to discover to assess their chances of winning the business is also information that may impact the Buyer’s leverage in the negotiation. 

Concessions require uncertainty and the higher probability they feel their chance of getting the business, the fewer concessions they will feel they need to make. You may need to disclose some information to get and retain their interest, but not so much that you lose leverage.  I would never disclose anything where from that information they can assume that they have a lock on the business or that it’s their business to lose. For example, if you disclose the urgency and schedule and their knowledge of the competition would tell them that that they are the only one that can meet that schedule, you’ve lost significant leverage.  Disclosing the urgency can also be used against you in the negotiation where they could use delaying tactics to avoid making concessions.
There is nothing wrong with disclosing urgency if you have multiple qualified suppliers you are negotiating with and you create deadlines for actions where they know if they don’t respond quickly you’ll move on to negotiating with the next Supplier.

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