The Science of buying

“the Science of Buying’ – behaviors that support effective vendor selection and bid solicitation
Consultant in the power industry

By Bill Ray

When it is time to bid maintenance services, or really any service contract since the same principles apply, typically one builds a bidders list. However, before assembling the list, the first step should be to evaluate the desired outcome from the standpoint of what supplier attributes are ideal for the specific service task to be purchased. This paper will focus on three attributes to consider: the name brand of the company, the size or depth of their capabilities and prior experience. This paper will describe why thoroughly vetting these three attributes greatly increases the effectiveness and efficiency of the bid process.

Branding – an intangible asset

The name brand of the service provider implies several underlying characteristics such as quality, expertise, success in the market place and recognition within the buyers organization. Brand can also represent intellectual property (IP) creating a real or perceived moat that others cannot cross. The IP moat is generally temporary as the underlying technology becomes more commonplace or competitors build capabilities of their own. Even as others meet the requirements, the brand IP effect can linger creating an aura of unique capability that may not exist or perhaps is not required for the desired scope.

Yet, such perceptions can create a potent brand bias or level of comfort that may skew evaluations resulting in a higher cost versus the true value received. Likely, the brand has been monetized by the provider, carrying a higher price in the market. Brand bias may also drive complacency at the service provider level, using their name to carry them to the market and glossing over poor performance with past reputation. Even the best known providers in the market should be challenged to innovate and beat the value of newer, more aggressive providers.

The provider’s brand inertia or positive brand bias within the purchaser’s organization may also carry it to the top of the bid list. If the brand is known within the buyer’s organization, they generally do not get the questions or scrutiny given to lesser known providers. Frankly, buying from branded providers is easier. However, brand bias may result in overlooking viable competitive service providers or not choosing the best service provider for a required scope. Given all companies were new to the market at one time, going with traditional names may result in missing out on the advantages of smaller, nimbler capable providers that are eager for business. Conversely, the provider’s brand may carry a very high weighting factor in the decision process. Identifying whether the brand of the provider has true, relevant differentiation is essential to an impartial evaluation.
“Even the best known providers in the market should be challenged to innovate and beat the value of newer, more aggressive providers.

Size and depth of capabilities

Typically, a firm brings either a narrow, but very well documented expertise in a specific area or very broad blanket coverage. The depth and breadth of the supplier is another purchasing decision point. If the scope of work is a single task with little chance of scope variance, single offer providers are acceptable. Focused scope, like a generator rotor rewind, is an example of single task work. The purchaser needs a provider to perform a rewind and do it very well. Basic services like a gas turbine open and close can also be considered as single task work.

On the other hand, if the scope of work can vary and have multiple skill set needs, then a service provider that has a broader and deeper skill set is more desirable. If the scope of work may require expanded scope such as unique engineered repair needs along with general inspections services, then a provider with a broader skill set and engineering bench strength is more favorable (Figure 1).

                                             Figure 1; Scope Complexity vs Price

Often, it is difficult to tune out the potential scope creep and focus on the most likely service needed. If the scope of work can be defined as a single task scope, the purchaser risks skewing the evaluation by over emphasizing supplier capabilities that are not relevant based on low probability ‘what if’ scenarios. Obviously, broad suppliers pitch their capabilities as a strength and play on the fear of what “might occur” during the course of work, to the detriment of single task providers. However, the single task provider often brings a level of focus and commitment to their more limited work scope than the broader, general practitioner service provider. In addition, the single service provider may have a significant cost advantage since they do not carry the burden of a deeper organization. The key to selection is evaluating the service need, keep it simple and a willingness to buy only what is needed and tune out the rest.

References

In all cases, the purchaser wants a supplier that meets or exceeds expectations and will be accepted within the buyer’s organization. Turning to repeat suppliers brings a sense of familiarity knowing first hand prior work performance. There is generally little internal resistance to hiring the same supplier again. However, the prior supplier may have done a poor job, key personnel may have moved on or perhaps the price is getting too high.

When exploring new providers, other buyers with similar purchasing criteria as yourself may be able to provide insights and recommendations. In requesting recommendations, it is important to seek an understanding of why the winning supplier was chosen along with how they performed. A buyer not only wants a successful and competent provider, but also one that was selected using a similar evaluation criteria. If possible, ask peer buyers if they would share their evaluation matrix, even if the scoring must be removed. This will provide valuable information on how the winning provider was selected,  selection criteria and whether it matches your priorities. There is no need to buy without having a solid expectation of performance. Likewise, someone else’s “ten” may not meet your needs so look beyond a recommendation into the basis of the choice.

” In requesting recommendations, be sure to ask why the winning supplier was chosen along with how they performed.

Summary

Building an effective bid list is not about assembling a group of providers willing to generate a proposal. An effective list requires matching the providers to the organization’s need, whether it is name recognition, suite of offerings or experience or a combination of the above. Spending time to evaluate the type of bidder that would be the ideal winner, will help put together a targeted bid list. If the targeted list results in only one or two providers, a negotiated purchase contract may be more time effective than a multi party bid. Price was rarely mentioned in this article for two particular reasons (1) if price is the principal deciding factor, the rest of the detail does not matter and (2) if evaluated price is the deciding factor, the weighting factors in the evaluation will likely overcome any price gaps. For more insights to selecting a provider, review our blog Selecting a Maintenance Provider: Focusing on the Right Things

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