A shared vision and commitment help with drawing up an efficient procurement strategy

Typically, procurement makes up approximately 60–80% of the company’s turnover. Yet, it is regrettably rare that the importance of a seamless procurement process is acknowledged. When it comes to customer projects, it is often evident that the company’s management lacks a sufficient view of the current state of procurement, there is no regular reporting, and procurement […]

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Author: Matti Torkkeli

Competitive tendering from the supplier’s point of view

A long-term customer suddenly sent me a request for a quotation for familiar old products—unasked and unexpectedly. WHAT IS THIS?  I thought we were long-time partners of theirs. Why are they now asking about prices when we already talked about them two years ago? Are cracks suddenly appearing in our harmonious cooperation? How should I feel about it all? – Heikki Karppila’s tips on how to submit tenders in competitive tendering.

Competitive tendering arouses parties to invest in the future

Let’s look at the situation from a reverse angle, i.e. the customer is notified of a price increase of 3.5% —a general increase for whatever reason (although usually based on facts) and in some cases on an annual basis. Maybe the backdrop is the customer-specific margin presented by the sales manager in the previous sales meeting, which showed an insufficient margin for the customer in question? And how about the instructions issued in the next briefing to send a price increase notification to the customers who do not meet the target margin? After all, it’s only natural that the labor and/or raw material costs have increased. And yet, the customer’s natural response may be: What is this? I thought we were long-time partners, and now they’re asking for more money!

Why has the customer started the competitive tendering?

What reasons does the customer have for requesting quotations for procured items? Obviously, there is one common denominator for both parties: improving the company’s profitability. But what triggers a customer’s need for competitive tendering? From the customer’s purchaser’s point of view, often the reason for highlighting the issue is the supplier’s unrealistic price increase notifications, inadequate security of supply (missed deadlines, quality deviations, etc.), or even the items needed for a new product, which require a price and a sole supplier. From time to time, an active purchaser will request quotations for different product, material, or service categories to get a better idea of the going market rates and vendor margins. There may be any number of other reasons: the purchaser’s business is going through a change, scaling up or down or becoming more globalized, which necessitates a rethink of the supply chain to advance the business.

The worst-case scenario for the purchaser is if they are afraid to change yet have never assessed the potential costs of changing suppliers, the changes in production or the product, or the level of risk involved.

Competitive tendering—a threat or an opportunity? 

So is that email you received requesting quotations a threat or an opportunity? How should you feel about it? Vendors are always excited when presented with the opportunity to submit an offer. After all, it’s a critical step toward a sale. Of course, a more serious-minded vendor might wonder if the purchaser is teasing them, taking a shot in the dark, or whether the request for a quotation is a sign that the race is truly on. Can the purchaser seriously change suppliers? My advice would be to stop speculating and, as a vendor, the last thing you want to do is throw a tantrum if the customer is alert and interested in inviting tenders. In the main, the purchaser always wants to hold on to a good supplier and is well aware of the additional costs arising from changing suppliers. Indeed, these potential changes should be evaluated in money and risks. The worst-case scenario for the purchaser is if they are afraid to change yet have never assessed the potential costs of the change, the changes in production or the product, or the level of risk involved. The cost of change must be amortized against a price reduction, improved service, security of supply, or some other added value for the customer’s business. Do I get a head start as a familiar old supplier, or did I receive the request for a quotation simply as a courtesy? Has my customer already had their head turned by a competitor? Do I need to quote my final price right off the bat?


If there is a condition to which you can’t agree, you should state it clearly and make a counterproposal.

Gain an insight on what the purchaser needs. Ask if you’re not sure.

Just for a moment, let’s pretend we’re the purchaser and try to imagine how they are looking at the situation. The purchaser wants a quick decision, not to waste time with several bidding rounds and haggling about prices. Sometimes, the situation may necessitate a second or third bidding round to make sure that no stone has been left unturned and to ascertain that both the commercial and technological requirements of the purchaser have been met. In some cases, it may even be useful to turn the competitive tendering into an auction and thoroughly assess the prices—based on careful consideration and your understanding of the market. My advice is to adhere to the schedule of the request for a quotation. If the purchaser does not provide a clear schedule, it’s a good idea to ask them. In all likelihood, the purchaser has invested a considerable amount of time and know-how to draw up the request for a quotation, so you should read the  “RFQ/Request for a quotation” document as well as the terms and conditions set forth in it carefully through. If there is a condition to which you can’t agree, you should state it clearly and make a counterproposal. On the other hand, if you notice that the purchaser has accidentally left out an important specification from the commercial terms or the product/service specification, you can raise your own stock by pointing it out. For the sake of clarity, what I’m talking about here is competitive tendering in the private sector.

No tender means no sale, so you should submit yours!

What is the significance of the scale of the competitive tendering? Does the request for a quotation factor in LCCS (Low Cost Country Sourcing) or the currently used expression CCC (Cost Competitive Countries) which, from the Finnish point of view, also includes the Baltic states and Eastern Europe? Having received the request for a quotation, the supplier does not necessarily know the scale of it. Of course, the language of the request may contain a clue: if the language is English, the customer is likely to welcome quotations from a larger sample group extending outside the borders of Finland. That said, a smart purchaser can issue localized requests for a quotation in the language of the target country, so you can’t always rely on this 100%. I myself use a competitive tendering tool where the UI can be set in the local language of each recipient of the request for a quotation. 

If you don’t submit a quotation, you can’t land the deal or keep your current customer, so why not respond?

Think about ways in which you can offer added value: Something the customer appreciates and will be able to use concretely in their business.

  • Warehousing provided by the supplier
  • Shorter delivery times
  • Longer payment terms
  • Product support
  • Help with design or product development to upgrade the purchaser’s product

At this juncture, you should also consider whether you have identified the strengths and competitive advantages of your business and whether you can put them to good use and clearly communicate them to the customer. When it comes to the quotation and the contract negotiations, the customer, i.e. the purchaser, should be able to discount future benefits at the current time in order to make a decision regarding the supplier.

In many cases, we could learn a lot from public procurement. It’s true!

Is the purchaser simply fishing or are they serious about finding a solution?

Has the purchaser included any negotiable targets in the request for a quotation or are the requirements set in stone? Does the purchaser genuinely appreciate the supplier’s input with regard to setting the requirements? In other words, is the supplier allowed to give their views on the product or service? If this is the case, don’t hold back, seize the day! The purchaser still has an open mind in terms of their requirements, and you have a real opportunity to influence them. The purchaser will iterate the options, work on the specifics, and hold several bidding rounds. You should aim to be a part of it.

I don’t know how far-fetched this is but job advertisements often have similar lists of requirements, and the applicant can’t always tell in advance with any level of certainty which of them are mandatory requirements and which are preferences. In either case, there is a need to fulfill the position or choose a supplier’s products and services. If you’re undecided, it’s usually better to ask first and then draw your conclusions. Or, you can simply submit a quotation for the products/services you can offer subject to the terms and conditions you can agree to. Just remember to explain in your covering letter the ways in which your quotation deviates from the request for a quotation. In my mind, in the spirit of fair play, the purchaser must also include the current supplier in the request for a quotation (that is, assuming that the supplier is a viable partner vs. there will be a change of supplier come what may) and give them the chance to revise their prices and terms. The current supplier should see this as an opportunity, not retreat to a bunker and throw a hissy fit. The world changes and we should roll with the punches. It is also not unusual to use the current price as the basis for a price comparison and only send the request for a quotation to the competition. Then, it is the case of ending the current partnership and moving on to a new supplier who offers lower rates or better service. This tactic does not always yield the best results. Conscious purchasers use extensive selection criteria, which they also relate to all suppliers in the request for a quotation. In many cases, we could learn a lot from public procurement where the requirements are either met or not met—but let’s not start any further comparisons between the private sector and the public sector.

Suppliers who do not submit a quotation are easily left out of any future requests for a quotation.

What is the image you want to give the purchaser of your company?

Image works both ways. If a supplier does not respond to a request for a quotation, does it automatically mean that they are not interested in the products or service requests in question? Or does it imply that they are not included in the supplier’s range? The smart thing to do is to be honest with the purchaser. A supplier who acted correctly in a request for a quotation may be taken into consideration as a potential supplier the next time around. The world changes and so do circumstances. Suppliers who do not submit a quotation are easily left out of any future requests for a quotation. The image of the supplier—or rather of the supplier’s representative—is also shaped by the way they react if their quotation does not land them a deal. To put it plainly, acting like a sore loser should be avoided to the death. Unfortunately, every now and then you do have to answer calls and emails to correct the supplier’s perceived injustices. But that just provides an opportunity for learning for both sides!

Should you ask the purchaser how you did and why you weren’t picked?

Yes. What better opportunity for the supplier or vendor to learn? Many suppliers try to find out information about the reasons why they lost in a competitive tendering. How wide of the mark were they with their pricing? Were there any specific terms that prevented the deal? Which one of their competitors landed it? While the purchaser cannot quote precise price differences, they can provide approximate indications when talking about competitive tendering in the private sector. In general, announcing the result of a competitive tendering to the suppliers is in the job description of a skilled purchaser. I want to revisit a topic that I mentioned earlier, which is, should you always give the chance to improve a quotation? Should it be the standard protocol? Should the supplier know that there will be another round, or do they have once chance to get it right? These are some of the choices facing the purchaser, and they can choose the appropriate method for the situation at hand.

As an external service provider, I have had the opportunity to observe the procurement and competitive tendering projects of different customers from a close range. You often come across the same suppliers and the same suppliers’ contact persons. This provides you with an opportunity to learn about the ways the supplier works. Presumably, the suppliers also learn how I work and negotiate contracts. It pays off to act in the correct manner so that when the next competitive tendering comes around, you can take part in it without any skeletons in the closet. The same applies to both parties. Competitive tendering is par for the course in business, and you should approach it naturally and be prepared to accept it for what it is. At the moment, the internal market is by and large stable; there is no organic growth and the question is mainly about increasing or adapting market shares. You should always look at any future competitive tendering as an opportunity to either land or retain a customer, even if it means potentially diminishing returns. Keep in mind that if the procuring company does not maintain its competitiveness, one day it may sound the death knell for its operations and your mutual business.

I would really like to hear the equivalent thought process of a sales person: how should a purchaser approach a contact by a vendor as well as a potential price increase?

Practical tips for competitive tendering and cooperating with a network of suppliers

Here are a few practical tips based on my personal experience of competitive tendering and cooperating with a supplier network. Although you should avoid generalization, you can use them as a basis of reviewing your own operations and thinking about how to approach the next competitive tendering.

  • Carefully view the request for a quotation
  • Try to understand the reasons for the request for a quotation and the criteria set by the purchaser
  • Try to understand the customer’s business, the key issues, and the bigger picture
  • There’s never any harm in asking—whether it’s a case of an unclear or a missing requirement
  • Purchasers appreciate elaboration and new options—the purchaser will look at it as a sign of the vendor or supplier’s professionalism
  • If you notice that the purchaser has accidentally left out an important specification from the commercial terms or the product/service specification, you can raise your own stock by pointing it out.
  • Build trust and cooperation—aim high, don’t settle for simply managing a vendor vs. purchaser relationship
  • Highlight the competitive advantages of your company, product, or service—raise the bar, don’t try to go under it!
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