2. Tendering is the most powerful tool for the purchaser

Once you’ve harnessed the law of supply and demand to benefit your company, you can begin tendering your purchasings effectively. This blog explores well-thought and managed, results-driven tendering.

There are many definitions of tendering. Here, we use a broad definition that covers the entire process—from defining needs and supplier options to monitoring and improving the performance of selected suppliers. Some people use the term competitive bidding instead of tendering but the latter is a wider thing where the buyer is running the show and that is why we use the term tendering.

Procurement engages in tendering because it puts procurement—instead of suppliers—in the driver’s seat. If procurement doesn’t tender, suppliers take the initiative and start raising prices.

Suppliers dislike professional buyers’ tendering processes because they squeeze out inefficiencies and reduce supplier profit margins. But tendering is a normal part of market economy operations, where price levels are regularly checked to avoid overpaying—something that always impacts your company’s bottom line.

How do you tender effectively, and what does the tendering process look like? Tendering can be divided into the following stages:

1. Preparatory groundwork

2. Requests for quotation (RFQs)

3. Offers, negotiations, and supplier selection

4. Contracts and implementation

5. Supplier performance monitoring and addressing deficiencies

Let’s examine these stages more closely.

1. Preparatory Groundwork

This is the most important phase of tendering. If you do this well, the rest of the process will go smoothly. If you do it half-heartedly, the process can derail. If procurement does better groundwork than the seller, procurement wins. If the supplier does better groundwork, the supplier wins.

Preparatory tasks include:

• Summarizing and forecasting your needs for the upcoming contract period

• Identifying all potential suppliers

• Understanding the supplier market situation

• Analyzing current supplier performance

• Gauging internal customer satisfaction/dissatisfaction with each supplier

• Searching for, testing, and approving new suppliers

• Briefing the tendering team and ensuring sufficient time allocation

• Creating a tendering plan

• Setting concrete goals for the tendering outcome

• Reviewing lessons learned from previous tenders in the same category

• Informing suppliers in advance about the upcoming tender and its schedule, etc.

A long list—but essential for successful negotiations.

2. Requests for Quotation (RFQs)

Send RFQs to all potential suppliers, including those not yet approved, as they may submit interesting offers useful in negotiations. Invest time and effort in preparing RFQs and guide supplier candidates to submit offers in the format and scope you want.

You’ll receive better-priced offers if you provide accurate forecasts of future needs. Attach selected terms to the RFQ to reduce negotiation details later—e.g., “The buyer selects suppliers line by line and does not accept bundled offers,” along with minimum payment terms, delivery terms, currencies, and price validity periods (ideally fixed for the entire contract period).

Even if you have only 1–2 approved suppliers, make the RFQ look broad and competitive. Send the RFQ and attachments individually via email to each supplier, clearly stating the deadline for submission. You can follow up with calls to ensure delivery and emphasize specific points.

3. Offers, Negotiations, and Supplier Selection

As offers come in, begin negotiations with each supplier immediately. Review each offer to ensure it matches your RFQ—if not, call the supplier, thank them, explain what’s missing or incorrect, and request a revised offer.

Once all offers are in, summarize and compare them based on price, payment terms, delivery terms, quality, lead time, sustainability, and other criteria. Continue negotiating with each supplier, pushing for improvements wherever you see overpricing or other opportunities.

Invite the best suppliers to face-to-face negotiations. Don’t invite all suppliers on the same day, especially in smaller towns, as they might stay at the same hotel, meet at breakfast, and coordinate negotiation tactics.

Negotiate the best possible outcome with each supplier. Continue negotiations after face-to-face meetings until you reach offers that can’t be improved further. Finalize deals with the selected supplier(s).

Inform unselected suppliers what they need to improve next time. Be specific—for example, “We didn’t select you because your price was X% higher,” or “Your payment term was Y days shorter than competitors.”

4. Contracts and Implementation

Sign delivery contracts with selected suppliers and ensure smooth transitions within your company. Prefer using your own contract templates approved by your legal department—this also signals whether it’s a buyer’s or seller’s market.

Minimize contract gaps—ideally, sign new contracts before the old ones expire. A solid contract reduces risk and protects you. Ensure a smooth transition: use up old inventory, update new prices in ERP, coordinate your production and suppliers about the change, etc.

Make contracts time-bound to force re-tendering. Avoid contracts that are valid for the time being because that leads to laziness and complacency. A one-year contract is usually good; for complex purchases, 2–3 years may be justified. For volatile purchases, a short contract or price formula may be best.

5. Supplier Performance Monitoring

This final phase is essential to the tendering process—and also the first phase of the next tendering. Especially if you’ve changed suppliers, closely monitor the new supplier’s quality, delivery reliability, order confirmations, shipments, invoicing, etc.

Your credibility is on the line. If you’ve chosen the right suppliers, they’ll perform well, and you’ll be able to switch suppliers again in future tenders if needed.

Record improvements you didn’t achieve this time so you can address them in the next tender.

Can you buy effectively without tendering?

No, you can’t. You can partner with a critical supplier, but if you never tender, your partner will inevitably raise prices. Tendering doesn’t exclude selected partnerships, nor should partnerships prevent tendering.

Should you tender your entire spend?

According to the 80/20 rule, focus on high spend and major suppliers. Ignore tail spend and minor suppliers.

In Summary

By tendering correctly, you improve your company’s profitability, cash flow, and competitiveness—provided you’ve first increased supply. A buyer can’t run multiple tenders simultaneously, so create an annual calendar to avoid overlapping negotiation phases across categories.