Procurement is the process of finding, agreeing terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process. … Procurement generally involves making buying decisions under conditions of scarcity
Generally speaking, there are six procurement methods used by the procurement team in a company. The actual names of these could vary depending on your company and industry, but the process remains the same. The six times of procurement are open tendering, restricted tendering, request for proposal, two-stage tendering, request for quotations and single-source procurement.
Open tendering is shorthand for competitive bidding. It allows companies to bid on goods in an open competition or open solicitation manner. Open tendering requirements call for the company to:
- Advertise locally
- Have unbiased and coherent technical specifications
- Have objective evaluation measures
- Be open to all qualified bidders
- Be granted to the least cost provider sans contract negotiations
There are course also disadvantages to this kind of procurement method including:
- Complex requirements are typically not suited for this method
- The timeline for needing the goods
- Complications in defining the exact needs of the requirement by the procuring company
Unlike open tendering, restricted tendering only places a limit on the amount of request for tenders that can be sent by a supplier or service provider. Because of this selective process, restricted tendering is also sometimes referred to as selective tendering. Like open tendering, restricted tendering is considered a competitive procurement method, however, the competition is limited to agencies that are invited by the procuring team. The procuring entity should establish a set of guidelines to use when selecting the suppliers and service providers that will be on the invitation list. Randomized selections will not bode well for procuring. This method is selective to find the best-suited and most qualified agencies to procure goods and services from. It’s also employed as a way for the procuring team to save time and money during the selection process.
Request for Proposals (RFP)
Request for Proposal is a term that is used all across the business world. Social media managers receive RFP’s from potential clients all the time when a client is seeking a new manager of their venture. This kind of proposal is a compelling and unique document stating why the business is the best fit for the type of project at and. Similarly, in the procurement world, a RFP is a method used when suppliers or service providers are proposing their good or service to a procurement team for review. If you’re a supplier, understanding the in’s and out’s of quality service management is key to winning your bid. Read more in service quality management.
Two Stage Tendering
There are two procedures that are used under the two stage tendering method. Each one of the procedures has a two stage process. This can be disadvantageous for some procurement teams if there is a time limit on securing a contract. In the same vein, this option is more flexible for both parties, allowing more room for discussion to meet mutual needs.
The first procedure is very similar to the RFP method as discussed above. The procurement team receives a proposal with two envelopes – one with the proposal itself and one with the associated financial information. The difference is the bidder is required to submit a technical proposal that highlights their solutions to fulfilling the requirements as specified by the procuring department. This proposal is scored according to the relevance of the solution to the needs of the procurer. The highest scored proposal is invited for further discussion in an attempt to reach an agreement. After the final agreement for the technical proposal is reached, the bidder is invited to submit their financial proposal and then further discussions ensue to negotiate a contract.
The second procedure is much like the above, however, instead of the bidder submitting a fully-completed technical proposal, a partial proposal is submitted. The methodology and technical specifications will be included but not to the fullest extent. This allows room for even more customization and discussion. Once the highest qualified bidder is selected, they will be invited to submit a thorough technical proposal along with a financial proposal. The technical proposal will be evaluated and only then will the financial proposal be opened. The combined score of both the technical proposal and the financial proposal are the grounds on which a bidder is contracted.
Request for Quotations
This procurement method is used for small-valued goods or services. Request for quotation is by far the least complex procurement method available. If you have the option, use this method to ensure a fast procurement process and not a lot of paperwork. There is no formal proposal drafted from either party in this method. Essentially, the procurement entity selects a minimum of three suppliers or service providers that they wish to get quotes from. A comparison of quotes is analyzed and the best selection determined by requirement compliance is chosen.
Single source procurement is a non-competitive method that should only be used under specific circumstances. Single source procurement occurs when the procuring entity intends to acquire goods or services from a sole provider. This method should undergo a strict approval process from management before being used. The circumstances which call for this method are:
- If only one supplier is available and qualified to fulfill the requirements
- If the advantages of using a certain supplier are abundantly clear
- If the procurer requires a certain product or service that is only available from one supplier
- For the continuation of work that cannot be reproduced by another supplier