Is Supplier A Really Cheaper Than Supplier B?

Jana Jůzlová has more than 20 years of experience in corporate procurement in manufacturing companies. She specializes in strategic procurement consulting and helps companies turn procurement and logistics into a competitive advantage. We looked at the biggest mistake in bid evaluation, one that costs companies millions without them noticing.

◆ A colleague from another department once told me how expensive our purchasing was, saying he could find the same thing online or at a DIY store for less. It was a sprayer. I quickly understood the price difference. He only saw the price on the label. Leaving aside shipping costs, payment terms, bonuses and other factors, his sprayer was mechanical, while our specification called for a pressure sprayer, which is in a completely different league! The warranty was another factor.

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One of the most common mistakes in procurement remains the same: we compare prices, not actual costs. Or we compare solutions with different benefits and pretend they are the same.

◆ My example is typical: one bid looked significantly better at first glance. Once shipping, packaging fees, minimum order quantities, payment terms and other surcharges were added, the ranking changed.

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And that is why I like the principle of “apples with apples, pears with pears.” First, we need to be clear about what we are comparing. The same specification, the same quantity, the same terms and the same delivery parameters. Only then does a comparison make sense.

◆ A digitalized tendering process puts all bids into the same structure. Instead of several Excel files and emails, I see the parameters side by side and work with total costs, not just the purchase price.

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This is also important when management makes decisions. When I say that Supplier B is 3% more expensive but its TCO is ultimately lower, no one understands me. But when I show them a color-coded table with clear figures, I can explain exactly why.

◆ Digitalization helps change the way we compare options and make decisions. The lowest-priced bid may not be the lowest-cost purchase. And total costs reveal the difference that the price alone hides and that can lead to a loss.

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In Promitea procurement software, you can require suppliers to submit a bid in exactly the format you need. You also choose the criteria you value: price, delivery terms, warranty, packaging, cost of input materials and service. The software then automatically compares the individual bids and recommends the best one based on your criteria. And in cases where you decide not only based on the total price but also on operating costs, Promitea lets you easily model the best bid for 1 year, 3 years or even 5 years of operation. And you often discover that the best bid, when recalculated over 3 years, is actually the worst because the supplier charges high prices for service and spare parts.