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Now is a good time to talk about bid packages in purchasing and procurement. I alluded in the last lecture to there being different types of requests that were out there. These are some of those. It's not a completely exhaustive list. There are different industries with different traditions and practices, but these are the basic request types that are out there. The first is the request for information. In this situation, a buyer is looking for potentially new suppliers, trying to understand the capabilities of existing suppliers that they're going to purchase additional lines or products from. And so they're trying to determine what are the capabilities of different suppliers. What is the interest level of suppliers? And so they would request information. There's not a firm commitment or timeline that's going to be communicated. There's not dollar amounts that are being shared or unit quantities. It's simply a request, do you provide steel roofing for residential properties? Could you give us samples? There's a number of things you, you know, anything. You could request information from the supplier so that you can become more familiar with the offering. The next is a request for proposal. Request for proposal is a little bit further down the precision end of things. What a request for proposal is saying, okay, I would like for you to given the set of things that I am looking for Go ahead and propose how you would solve the issues that I am trying to get this to fix. And so the supplier would be suggesting solutions, potentially various solutions, multiple for a single proposal. They might give you one, two, three, how many ever options you want with a corresponding budget quote for each one of these. If there is a complex set of specifications, this is where the supplier has the ability to trade off different qualities in this to provide you with input as to what that supplier can do and levels of innovation that they can have done. It's not uncommon to have very different proposals come back from different providers, different suppliers because they each interpret that request for proposal to be different as far as what the needs, what the capabilities might be. This makes them more difficult to evaluate simply because from different suppliers, you can have quite different responses as to what it is that they would propose to either build for you or provide to you. The third of these is a request for quote, and this is where the suppliers are given direct information as to what the specifications should be. Those specifications are usually going to be very clear, quite straightforward, if you will. And there's not going to be any deviation by the providers as to what that is. So if you are looking for a certain type of aluminum in certain sizes with certain qualities to them, you are not looking for any innovation or variability in these, you're simply looking for the best one to come back. And so the precision of what you are requesting gets higher and higher from a request for information, which is what can you do for me? What services, what products do you provide to a request for proposal? How would you fix this issue that I have down on the request for quote, which is, this is the exact widget I need provide it at what cost can you sell it to me at? Now, when creating these bid packages, the planning portion of procurement is massive. It's a huge amount of effort and involves a number of different things. I The first thing is it's going to have terms and conditions, and we'll talk more about terms and conditions in subsequent slides and lectures, but there are going to be a number of things that need to be agreed on. What is the payment schedule going to be like? What are the legal terms under which things are going to be falling? And also the specification of the goods and services. It can be everything from simple to complex, and it's also going to have the basis of the legally binding agreement for those provided within those terms and conditions as well. Also, you're going to outline what is the quantity, the delivery, where does it happen? Who takes care of what actions. We talked about ACO terms when we were discussing logistics. That, if it's moving internationally, comes into play. The quality, performance, and then what are the levels of support that are going to be provided? Along the bottom, you can see in this graphic, the amount of documentation that's going to be needed to purchase $100 of office supplies is going to be very minor. If you're buying $1 million worth of machine tooling, you're going to have a bit more documentation, complexity in terms and conditions that's going to be in that bid package. If you're buying $100,000,000 facility, going to have that produced for you. Now we're talking a very high level of precision that needs to be involved in everything, there's going to be a lot more to that bid package and documentation. As it relates to the terms and conditions or as they're sometimes called the T's and C's, These are the rules under which the bids must be submitted, and the stipulations are included in the purchasing contract. So this is communicated ahead of time to the potential bidders that these are the guidelines, the rules under which we are going to go ahead and issue any contracts ultimately, and they're published so that all of the potential suppliers have the ability to look at these, and they include many different things, the delivery dates and locations, how things are to be shipped, if there are inco terms, what are they that are expected? And we talked about the differences between the various During the exchange of handover who pays for what? We talked free on board, free alongside, distinctions like that. These would need to be outlined in the T's and C's. The payment terms, for example, net 90 means that 90 days after the item is received, the purchaser would need to pay, and so is it going to be paid upon receipt, 30 days later, 90 days later? Those are the net terms. What warranties are provided? You've probably all purchased an automobile at some point, and a warranty is something that helps you protect your investment. Same thing can happen with products that are being purchased between businesses. Different rules on ethical compliance can be issued at this time, as well as force majeure. Force majeure is like powers greater than ourselves. I You know, hurricanes, pandemics arguably probably fit force majeure, but there's a lot of cases going through. But these are, you know, acts of nature that are unforeseen. This can be written into a contract as to what would be needed to not perform on a contract due to force majeure reasons. How are cancellations handled? How do partners protect each other's intellectual property? And if things go badly, how would we dispute how would we resolve disputes within the contract in the confines? The specifications for goods simple and complex are going to differ. The simple products or goods that you're going to buy are going to have relatively generic specifications for them. There's not going to be requirements for details about how things are made, the processes that are used. It's just going to be, I want to buy 1,000 pieces of a bolt of a certain size and thread pitch with this type of a head on it. Relatively straightforward, and you don't need to reveal a whole lot about how that's accomplished to a buyer like that. As opposed to complex agreements, or complex goods, where details may include the exact quantities of all the raw materials that are used, information about the processes that needed to be engaged in to produce those products, performance characteristics, and how to measure them, which is important because two different people assessing how something is measured. We talked about inventory performance and how one set of performance could be assessed in multiple different ways earlier in the course. Same thing here on performance, what is it that we're going to be creating? Then what are acceptable subcomponents and suppliers if there are certain that are desired to be worked with or to be avoided. And then the packaging involved to protect that good, communicate information about it both visually as well as to machine systems. The level of detail as we purchase different items from simple complex goes up. We get more and more specific about what we want. If you are going to be buying a Lunar Lander, you're probably going to be very complex and specific about what it is that you want. If you're purchasing toilet paper, not so much detail is needed. As it relates to specifications, the simple specifications are nice because they're easy to develop and you can be flexible for suppliers to be able to respond to it. The challenges are that you can end up with variability in the final product with a too simple of the specification. As it relates to the complex specifications, you're going to get exactly what you planned on getting because you're very careful about that specification. The challenge is it might be more difficult to develop. Some suppliers may not be able to perform to your specification, and then there's less opportunity for them to get innovative, potentially even reducing the costs of that final good or service that you were purchasing.

22a - Bid Packages

From Andy Bassett April 1st, 2025  

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