Chapter 12 of 20
From time to time your Strategy (Chapter 11) will extend beyond simply winning a contract, to winning preferred supplier status too. Those who achieve such status are on high ground as regards security, efficiency and long-term reward.
The buyer sees the tender stemming from an internal need and his staff must concern themselves with seven questions: How do we describe what we need? Who should we contract to meet the need? How are we going to organise things? Where should things be set up? When should all stages be completed? Why should we proceed as above? And finally, what will give us the best overall outcome?
With all these issues to resolve, letting a tender is always risky. Given the buyer’s caution, indecision, bias and, in many cases, ignorance, the tenderer faces big problems too.
Think now about another buyer with an internal need. This time the buyer follows TQM principles and has a favoured supplier. TQM is a method through which organisations can proceed to eliminate waste of time, money and materials, and achieve or deliver outcomes that best meet the expectations of all stakeholders: staff, customers, suppliers and shareholders.
TQM describes the requirement in terms of excellence of quality and service. A favoured supplier is called in from time to time in an atmosphere of total trust. Given this scenario, only one question must be faced: what will give us the best outcome?
Repeated contracts self-limit
The system of repeatedly putting contracts out to tender is self-limiting and self-defeating. It is the hallmark of weak industries prone to short cuts, rip-offs, failures and disillusion.
Most major industry players worldwide put a supply requirement out to tender then award favoured supplier status to the winner. A long-term partnership follows, based on quality, service and trust.
The benefits of winning favoured supplier status are many. First you better understand the buyer’s problems. You are better able to exceed his specs. You can better use integrity, professionalism and past experience.
You can better control and minimise costs. You can better avoid price hikes and better avoid variations in price. You can better understand production problems and take more pride in your work. Quality will improve. You are working from experience, not from promises. Fewer quality checks will be needed. Pride in work is higher. You are more likely to hear your staff, customers, suppliers and financial backers tell you that you’ve achieved Best Practice.
For the favoured supplier, things are much simpler. There will be fewer paperwork problems and less need to specify details. Ordering parts and service will be simpler. Parts will be more standard. Fewer bids will be needed and they will be of a higher quality. With fewer hassles, administration can be reduced.
You can achieve better staffing as a favoured supplier. Your staff will already be trained in critical skills. Friendly relations are more likely to occur. People are more proactive because their ideas and requests are better heeded. Customers’ changes are better understood. Mutual respect is stronger between all involved.
Because procedures are already in place, prompt delivery is more likely. Tooling can be reused, inventories reduced. Urgent demands and variations are better coped with. Pressure is easier to accept. Just-in-time becomes achievable.
More opportunity to improve
The favoured supplier enjoys more opportunity to improve. TQM is easier to apply so that each run becomes better than the last. Tricky issues and pitfalls are more likely to be removed. Rejects and rework are less likely to occur. Innovation has a better chance to flourish. Economies of scale should kick in. Steady sales growth should be easier to sustain. Processes should become streamlined.
Finally, the favoured supplier is more secure. Pride of position replaces fear of rejection. Development plans can and should be discussed openly. It is common for a customer to contribute to the cost of a favoured supplier taking on new initiatives that improve outcomes. Costly machine tools and advanced training become affordable.
This doesn’t mean the favoured supplier has an easy ride. The customer says, “You’ve got to be and remain the very best, and I’m taking a keen interest in how you do it.” The logic is clear: the customer with the best supplier over and over is best able to achieve outstanding results for the benefit of his stakeholders.
The favoured supplier has less need to advertise for work. He may need fewer sales staff and sales costs will be lower. Staff turnover should be low. Loyalty should be high. People like to work for firms that thrive on being trusted.
Seek out the best firms
The favoured supplier seeks out the best firms to supply him, as favoured suppliers. He doesn’t shop around for “better deals”. Insolvency is unlikely to strike a favoured supplier.
You may believe that the niche in which you trade had no room for favoured suppliers. Test this theory well. If it’s true, look carefully for another niche. The strategic decision to seek favoured supplier status will temper the words and illustrations in your bid document from cover to cover. If you succeed, the rewards should be great.
(c) Tecads
Chapter reprinted from Tom's book, "Winning More Profitable Tenders" - published 2007.
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