Guidelines on Purchasing Practices
The following practices are used by Purchasing to promote competition and ensure that all purchases comply with the University's Bidding Requirements. The rules vary depending on the dollar value of the transaction, but the principles should be employed whenever University funds are to be used.
Working with the Purchasing Team
- Purchasing is available to perform the due diligence, complete required paperwork and execute the final contract.
- Purchasing is available to work in collaboration with our customers on large projects, on specialty projects or complex needs; drawing on our customers experience while adding purchasing value.
- Our customers may work independently to source their needs and select their supplier in accordance with university policy. Purchasing will execute the final contract, with prior assurance that all university policies have been adhered to.
The following guidelines are included primarily to give our customers a better understanding of the process and to better facilitate communication and collaboration. If you choose to select the supplier and obtain quotes without assistance from Purchasing, this section should serve as a guide or checklist. When a Preferred Supplier exists for the commodity or service being sought it is important and Purchasing strongly recommends their use. Preferred Suppliers are pre-qualified and choosing to use one may streamline the time-consuming processes of due diligence; selecting suppliers and preparing and evaluation of bids.
Selecting Qualified Suppliers
Supplier selection and evaluation is a process that can take considerable time and energy depending on the product or service.
- The first step in selecting suppliers is often research, particularly if the product or service has not been purchased before. There are a number of tools available for this initial phase:
- Check the Internet for procurement related websites, including Thomas Register, and business references available through the Tisch Library
- Use the Yellow Pages for listings of local suppliers.
- Check with consortia to which the University belongs, to see if a contract exists for the commodity in question
- Talk to colleagues in other institutions who might have purchased a similar product or service.
- Consult trade publications, directories, supplier catalogues, and professional journals.
- Talk to salespeople.
- Once a list of potential suppliers has been developed, begin evaluating each supplier ’s capabilities. Obtaining a Dun & Bradstreet financial report ('running a D&B') is a good place to start. However, a D&B contains only publicly available information or information that the supplier chooses to provide. Some D&Bs also include brief profiles of key management personnel and historical information on the company. Another option is to check with local Better Business Bureaus.
- There are a number of guidelines for supplier selection
- Find out how long the supplier has been in business.
- Find out who are the supplier's primary customers and ask for and check references.
- Investigate a supplier's financial stability.
- Check bank references.
- Tour the supplier's facilities, if possible.
- Is the supplier really interested in doing business with the University?
- Does the supplier use state-of-the-art technology?
- Does the supplier offer an educational discount?
- These steps should narrow the field to the three suppliers (sometimes more) who will be asked to bid on the particular product or service.
Preparing and Evaluating a Bid
Bidding goods and services is important for several reasons. The bidding process:
- allows "comparison shopping" for the best pricing and service
- allows for an informed and objective choice among potential suppliers
- encourages competition among suppliers
- provides a standard for comparing price, quality, and service
- provides a list of qualified suppliers for future bids
- provides access to University business for suppliers
The bid process begins with the development of a set of specifications or objectives. The Contract Administrator (CA) in conjunction with the requester must define the requirements exactly. Colleagues, technical personnel, trade manuals, and suppliers may be consulted for assistance in developing specifications. The requirements are then communicated to the selected suppliers by a Request for Quotation (RFQ) or a Request for Proposal (RFP).
- The RFQ process is designed to identify the supplier who can meet the requester's requirements for the best price. The RFQ should be used for bidding familiar, standard items. Price, delivery, and inventory are usually the most important elements of the RFQ. The RFQ should contain ALL the information necessary for the supplier to submit a valid quote:
- The product(s) should be described in detail.
- Specifications should be clear, concise and complete.
- Quantity, quality requirements, packaging, F.O.B. point, payment terms, and warranty, delivery, and inventory requirements should all be included in the RFQ.
- An RFP should be used for more complex projects, for services, and for long-term contracts, when there are important considerations other than price. The RFP usually begins with a statement of purpose or goals and objectives The RFP should:
- clearly define an acceptable level of performance for the supplier and a definite time frame for achieving this goal
- ask the supplier to describe the qualifications of those individuals who may be involved in implementing the goals and objectives of the RFP
- ask for all of the information contained in an RFQ (see above) but also can ask for input from the suppliers. The suppliers might be asked how they would address the issue, what unique contributions they would make toward achieving the goals outlined in the proposal, and what alternative proposals they would offer. The suppliers might also be asked to solve specific problems concerning time constraints, new technology, or on-the-job training for end users. "How" is as important as "how much".
- Criteria for Preparing an RFQ/RFP:
- Adequate time to prepare a good RFQ/RFP and allow suppliers sufficient time to respond (two to four weeks).
- All suppliers should receive identical copies of the RFQ/RFP and any subsequent changes in the bid specification.
- A deadline should be established for the submission of all bids. If the deadline is extended for one supplier, it must be extended for all.
- All suppliers should be notified in writing if the bid specifications change. If the changes are substantial, it may be necessary to extend the submission deadline. All suppliers should be notified of the extension in writing.
- If a number of questions are raised about the bid, consider holding a pre-bid conference. This will provide an opportunity to clarify the RFQ/RFP for all the suppliers and no supplier will have the unfair advantage of additional information.
- When the bids are received, they should be signed, dated and indicate the time that each was received. All competitive bids are confidential and should never be used as a bargaining tool.
- Criteria for Evaluating bids:
- Time should be taken to review the bids carefully.
- Narrow the field by determining which suppliers are "responsive". A "responsive" bid provides ALL the information asked for and addresses ALL the issues in the RFQ/RFP. Eliminate bidders who are unresponsive.
- Look carefully at proposed prices. Be wary of a supplier who substantially underbids his competitors. He may be 'low-balling" to win the bid but the quality of his product could suffer or he might be unable to meet the delivery requirements. A substantially lower price might also indicate that the supplier has misunderstood or misinterpreted the requirements.
- If appropriate, obtain and evaluate samples.
- If the bidding is close, ask for extended warranties (if appropriate) and compare prices.
- Consider the suppliers' past performances, after-sale support and services, technology, and the creativity used to meet the requirements or objectives.
Negotiating successfully takes skill and practice and should result in a win-win situation for both the buyer and the seller. Good negotiators:
- do their homework/research
- clearly understand their requirements and objectives
- develop strategies
- never lose sight of their goals
- know where they can afford to compromise and where they cannot
- make sure their negotiating teams have whatever expertise (technical, financial, legal) is needed to increase the chances for a successful settlement
- make an effort to anticipate the supplier's strategy and to determine what the supplier hopes to gain from the negotiation process.
When to Negotiate
Negotiation should be used when:
- the purchase involves a significant amount of money or represents an on-going effort
- the number of suppliers available are too few to competitively bid the purchase
- new technologies or processes are involved for which selling prices haven't been determined yet
- the supplier must make a substantial financial investment in equipment, technology or other resources
- do comprehensive research for reliable facts and figures. Never use information that could be questioned or proven inaccurate.
- define your goals. Never lose sight of the target - what should be gained from the negotiation
- negotiate on your "turf”
- prepare an agenda and brief the members of your negotiating team beforehand so that their strategy isn't compromised
- negotiate only with supplier representatives who are empowered to make concessions
- leave plenty of room to maneuver. The greater the initial demands, the greater the probability of success.
- don’t be afraid to be silent. Silence can be an effective negotiating tool. If the supplier fears he is losing the business, he may talk himself into offering more and better concessions than expected.
- call a recess or lunch break if negotiations break down.
- withhold something for concession in return for a point the supplier is willing to concede.
Always be fair. The supplier is entitled to a reasonable profit - one that allows him to stay in business for the long-run.
Negotiation Strategies to Avoid
- reveal strategies too early in the negotiation process
- get so bogged down in details that the overall objectives are lost
- try to prove the supplier wrong. Leave the supplier room to retreat gracefully from a stated position.
- display temper, frustration, and anger that can handicap the negotiation process and logical thinking.
- communicate anything to the supplier that reduces bargaining power, for example: "You're our only source." "We have $21K budgeted for this purchase." "I have to have it now." etc. Be intelligent and cautious.