Real supplier performance
Benchmarking supports bid evaluation in the selection phase of a request for proposal. This supports not only selecting the cheapest bid. It supports getting the best deal given the effect of the other cost drivers on the total cost of ownership. To this end, the comparison with the benchmark provides a first indication of an answer to the following kind of questions:
- Is this proposal competitive, a good opportunity (cheap) or an expensive deal?
- Is the proposal realistic, can the supplier live up to it or is a failure likely in time, cost, and or quality at delivery?
- Do I get value for money from this supplier?
If the difference of the proposal with the benchmark is large, serious question marks must be placed with the proposal. Like:
- Did the supplier understand the RFP?
- What are the reasons that the bid is so much cheaper / more expensive than the benchmark?
- much cheaper: does the supplier use very competitive kinds of tooling? Does the supplier want to get the project at any cost, and why?
- more expensive: is the supplier less efficient? is he expecting trouble in working together with the client?
- and of course: is the benchmark indeed valid or are there constraints that invalidate it.
This way customers can relatively easy determine the validity of the various estimates from the proposals, taking into account the project and proposed execution constraints.
This avoids the pitfall of selecting the cheapest bid and afterwards finding out that you have a bad buy. Instead of simply choosing the cheapest bidder, the most valid proposal can thus be chosen.
This substantially lowers the risk of failure from the project.
During the execution of a contract the performance of the supplier should be monitored. The actual realized performance should be compared with the assumed. This will give a timely warning when the delivery starts deviating from the agreed timelines, cost and/or quality.
After completing the project the actual realized performance of the supplier can be calculated. This is useful as input for the next request for proposal. Because then the actual performance of this supplier can be used to evaluate the proposal instead of only assumptions or purchase stories.