Brave new world
- October 24, 2013
by Tim Wilson
Online technologies are changing how manufacturers handle contract bidding
Contract bidding is changing, with online technologies able to expand opportunities for manufacturers big and small.
This includes exposure to new industries, but perhaps the greatest advantage is the ability to optimize contracts within a given geography. Local and smaller shops can incorporate logistical price savings that give them an edge over manufacturers in Asia and Mexico.
“We have seen great popularity with geographic sourcing,” says Patrick Hunter, senior vice president of marketplace operations at MFG.com, an online contract bidding site for manufacturers. “Many companies are looking to source close to their end markets or assembly operations. Our tool allows them to focus on areas with great precision versus trying to find suppliers in a web search.”
There has been some suspicion among manufacturers about contract bidding online. It might encourage a race to the bottom, with the lowest price always winning, and no proper controls in place to ensure quality. “There are two ways we can help with quality,” says Hunter. “First, our marketplace rating system keeps the supply group in balance because a buyer has the opportunity to rate the performance of a supplier and vice versa. And second, we have teamed up with UL to offer auditing services.”
Covering all the bases
Ensuring satisfaction benefits from having third party overview; as a company, UL has sophisticated audit capabilities. Audits can be built into the contract bidding process, which itself can be part of the overall functionality for procurement. This is the case with eBid eXchange, a hosted solution that incorporates online bidding and contract management with supplier management and sourcing. “We do both types, bidding and procurement,” says Tom Stevenson, director of client services at eBid Systems. “The system allows for buyers to post various purchasing scenarios, including a description of the parts. It is designed to allow conversations with multiple bidders, with vendors that are registered and pre-qualified.”
eBid Systems also has contract management capabilities that allow for the capture and storage of information for longer term contracts. The process-based system has tools that quickly calculate the lowest cost per item. “We can split awards for different items from different suppliers, and we also have a way to weight criteria,” says Stevenson. “If you want to allocate ten per cent of a bid to local business, you can balance that score.”
eBid Systems’ software is configurable, allowing for case-by-case and client-specific functionality. Some will chose controlled registration and pre-approval, whereas others will want a more relaxed scenario. In the case of MFG.com, there have been some complaints from manufacturers that they present detailed information, including budgets and plans, for multiple opportunities, with the winning tenders going exclusively to firms delivering on lower price points and labour rates. The counter argument is that online tools can deliver greater opportunity to smaller players by making the bidding process more efficient.
Leveling the playing field
This can offer advantages to smaller players, many of whom do custom work and don’t have the internal resources to invest in large scale, customized responses to RFQs.
“Figuring out a bid can be very difficult,” says Brigitte Knapp, owner and business manager at TRK Attachments in St. Catharines, ON. “This is a problem with custom work.”
TRK Attachments, which manufactures heavy equipment attachments, does mostly custom work that can be difficult to price. Knapp is considering online options such as MFG.com, but at present it is up to Knapp’s husband and co-owner, Thomas Knapp, to crunch the numbers. “We are getting better at it,” says Knapp. “There are risks if you budget for 40 hours and it takes 50. It is one reason a business might move away from custom stuff so as to build in more predictability on the bids.”
Advocates of online contract bidding systems argue they have the flexibility to drive value out of custom jobs in such a way that protects the manufacturer. If so, it could help smaller shops like TRX find a broader customer base while still securing margins.
“Typically, sourcing professionals see between eight per cent and 20 per cent savings on custom sourced parts,” says Hunter from MFG.com. “This is done not because of price shopping but more because it allows suppliers with the right equipment quote on the right jobs. We better align the capabilities.”
Some buyers and manufacturers will attempt an end-run around with an online system, establishing contacts and relationships and then taking their bids offline, and conducting repeat business from there. That might make sense, but means they lose access to online tools, and also risk missing future opportunities. So far, this isn’t a big concern for companies like MFG.com, which says it is continuing to see a strong uptick in general manufacturing needs for mechanical parts. “I believe sourcing professionals are looking for easier and faster ways to connect with suppliers, and we help in that process,” says Hunter. “We are also seeing much more demand for localized purchasing globally.” SMT