bid evaluating process and final supplier selection

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BID EVALUATING PROCESS AND FINAL SUPPLIERSELECTION

1979 NATIONAL MATERIAL HANDLING FORUM

G. D. PETERSONCATERPILLAR TRACTOR COMPANY

SEPTEMBER 12, 1979

Introduction

The process of evaluating bids and then selecting a supplier is a critical step in theimplementation of a major material handling system. With millions of dollars worth of capitalexpenditures riding on this decision it is imperative that careful consideration be given to thisstep.

Depending upon the complexity of the material handling system, various groups within acompany may be involved in the bid evaluating and supplier selection. In addition to thetraditional involvement of the Purchasing and the Planning or Industrial Engineering groups; theAccounting, Maintenance, Plant Engineering, Environmental Control, Safety, Legal, Training,Materials, and Manufacturing groups are sometimes involved in the evaluating and selectingprocess.

Following are five areas that should be considered when evaluating bids. It is necessary toevaluate each bid in relationship to each area before the final decision (i.e. which supplier toselect) can be made.

Economics

“The contract was awarded to the low bidder”. Each of us has heard or read this statement manytimes at work, on the radio, and in the evening newspaper.


Evaluating the economics of a bid is more than a simple comparison of the prices at the bottomof some quotation forms. In addition to the base price, items such as transportation, taxes,installation, start-up, maintenance, and operating expenses must be considered. Many times thelowest bid does not turn out to be the most economical bid.

Therefore, cost of a product is definitely an important consideration when evaluating bids, but itis not always the most important factor in determining which bid to select. In specific materialhandling systems, any or all of the following evaluation areas may be as important or moreimportant than economics.

Practicality

There are two basic questions each evaluator must answer when beginning a comprehensivecomparison of bids. These questions are:

1. Does this bid fulfill our requirements of “will it work”?

2. When comparing these bids, am I comparing identical systems or “apples toapples”?

If in analyzing a bid it is determined that the answer to question number one (1) is “no”, that bidthen becomes unacceptable. Either a new bid must be obtained or that supplier should bedropped from further consideration.

Once it has been determined that all the bids will meet the basic requirements, then questionnumber two (2) must be answered. A list of the variations in each bid should be made andadvantages of disadvantages of each variation should be defined. This is the most subjectivearea of the evaluation and care must be taken to ensure objectivity. Significant advantages ordisadvantages could result in the selection of a bid other than the lowest one.

When evaluating the variations, it should be determined whether a supplier has developedsomething new and innovative which requires a degree of confidentiality or whether he has onlyproposed an off-the-shelf alternative that is better than the original plan and should become partof the basic specification.

Technical Flexibility

In this time of declining natural resources, inflation, and government regulations, it is prudent toconsider the technical capabilities of a proposed system. Efficiency in usage of and requirementsfor energy, manpower, and environmental needs should be compared between bids.Conservation efforts in these areas are not only a moral obligation of industry but also offer apotential long term savings.

The equipment specified in the bid should be analyzed to determine if it is compatible to existingin-house equipment. Many times a low bid will cost more to install and make operational than ahigher bid because the low bid requires extensive rework to existing equipment and the higherbid does not.


Proposed systems should also be reviewed for physical flexibility. Can the system be expandedin the future without disrupting operation? Is the system designed so that new technology can beincorporated later without major disruptions? These and similar questions should be answeredwhen evaluating bids.

Match to Management Philosophy

Every company has its own operating procedures and requirements for doing business.Evaluators should scrutinize bids to ensure conformance with company policies and needs.Typical areas to review include the following:

1. Contract Language – ensure that it is effective, thorough, precise, accurate, andclearly states the rights and positions agreed to by both parties. Also ensure that itconforms to legal requirements and complies with Antitrust Guidelines.

2. Safety – ensure that there is compliance with OSHA standards, ANSI standards,local codes, and company safety departments.

3. Operator Training – determine the extent of operator training offered by thesupplier and what the cost of that training will be. Also determine if there is anynecessary training for maintenance personnel and how that will be provided.

4. Delivery Time – compare the proposed delivery date with the need date.Determine if he early delivery date on a higher bid results in savings that offsetthe difference in bid prices. In major material handling systems, earlyterminations of lease or rental agreements can result in substantial cost savings.

Reliability, Parts, Service

When compiling a list of qualified bidders, reliability, parts, and service capabilities are usually aprime consideration. Bid evaluation time is the last chance to review these items again.

Review the parts availability and service capability of the supplier. In many cases the localdistributor for the supplier controls these items. Past relationships with the supplier or distributoris a good measure of what to expect in the future. Another important item is the ability of thesupplier/distributor to react to emergencies. Since many major material handling systems are anintegral part of the production process this ability is an absolute necessity.

Check the number of instruction manuals and spare part lists the supplier is proposing to provide.If this item is not covered in the bid or if the number is not sufficient, now is the time to resolvethe differences.

Compare the warranties of each bid. Determine if parts, labor, travel expense, etc. are covered.Other points such as length of warranty, beginning of warranty period, and whether allcomponents are under one warranty or under separate warranties should be considered.


Resolution of these points can save many dollars and much grief after the installation if thesystem if agreement is reached now.

Conclusion

After reviewing the economics, practicality, technical flexibility, match to managementphilosophy, reliability, parts, and service areas it is time to take all the facts and compare them.From this comparison will come the selection of the proper supplier.

Figure #1 is an example of a bid comparison sheet. A tow tractor is used in this comparison tokeep the example relatively simple. The final decision on supplier selection in this example isbased primarily on economics, reliability, parts, and service since many of the other items werecomparable and acceptable.

Supplier selection is the threshold of implementation. It is a critical step in providing a majormaterial handling system. Thoroughness and accuracy in evaluating each area of the bid is ofutmost importance. The system with the lowest bid should be selected only if it meets theminimum established requirements as defined in the written description of operation and thesupplier has proven capable of providing the system being proposed. In the comparison of bidswhere minimum requirements may be flexible or unclear, the evaluators must examine otherfactors to determine if a higher price is offset by increased value to their company.

bid evaluating process and final supplier selection

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