Looking to Procure at the Best Prices? Choose From These 6 Procurement Methods

Who among a vast pool of potential suppliers is the most suitable for your business? Can suppliers deliver goods on time and at the best prices? What does their track record show?

You may have come across this situation many a time. Have you figured out the right way to go about selecting a vendor?

From clearly stating the requirements of goods and services to shortlisting the most suitable supplier for the job, procurement plays a crucial role in business operations.

While it may seem rather simple and straightforward, shortlisting a supplier who is best suited to meet business requirements and key deliverables is no easy task.

In addition to pricing, procurement needs to ensure that it can get quality goods and services from suppliers within the required timeframe.

How can procurement organizations go about this? Do they need to follow a structured process?

Choosing the Right Procurement Method

The choice of a procurement method can vary depending on the industry, nature of business and specific requirements.

Here are some of the commonly used procurement methods across industries:

1. Open Tendering:

As the name suggests, open tendering allows companies to bid on goods in an open competition by releasing an invitation to tender. It may also advertise locally stating technical specifications of the goods required. Prospective vendors respond stating why they are best suited to fulfill the contract. The business then evaluates these responses before making a selection or further inquiry. By promoting competition among suppliers, a business can get the required goods at the right price, thereby getting value for its money.

2. Single Source:

Unlike open tendering, single source procurement is a non-competitive method of sourcing goods and services from a single vendor. This procurement method is used when supplies are available from a single vendor who is qualified to meet business requirements. It can also be used in continuation of previous work with a vendor. By relying on a single vendor for procurement, single sourcing ensures that your business gets exactly what it needs at a price you can afford.

3. Two-stage Tendering:

In this method of procurement, a buyer invites tender in two stages. While the first stage involves bidders submitting their proposals without prices, the second stage includes price specifications from selected bidders. All proposals are carefully evaluated and scored after the first stage. Vendors with the highest-ranked bids are then invited to stage two, where they may be asked to submit a detailed technical bid and cost breakdowns to reach an agreement.

4. Selective Tendering:

With the objective of choosing the best-suited suppliers, selective tendering or restricted tendering limits the vendor pool by restricting the number of requests for tenders sent out to suppliers. This restricts the competition to a few vendors who are vetted based on their track record and other parameters. This method allows for better selection while saving time and money in the procurement process.

5. RFPs (Request for Proposals):

In this procurement method, the company announces a project and invites proposal requests from qualified contractors. Vendors and service providers can go through the statement of work that outlines the project requirements, timelines, key deliverables and selection criteria. They can then prepare their proposals in the required format and send them to the procurement team. It’s common for vendors to submit their proposals in two separate envelopes – one outlining the technical proposal and the other for the financial proposal. The latter is usually sealed and opened only after the technical proposal is approved.

6. RFQs (Request for Quotations):

RFQs are used to invite bids from potential vendors, often for small-value and readily available goods and services. What differentiates it from an RFP is that an RFQ also includes a pricing quotation. The company compares different quotations to determine the most appropriate supplier.

Along with the above-mentioned methods, procurement should also look at a supplier’s past record, customer reviews and online ratings. Another valuable source of information can be references from past clients who have worked with the supplier and can therefore provide first-hand experiences and reviews.

Additionally, before diving into the vendor selection process, it is vital for procurement to fully understand specific business requirements such as price points and terms of delivery. Not only can this information help in choosing the right supplier, but it can also aid in securing favorable terms and contract negotiations.

Learn how GEP’s procurement software can help your business zero-in on best-suited suppliers.