Explain Why Companies Use Competitive Bidding and Explain the Advantage of Using It.

Topics: Supply chain management, Procurement, Supply chain Pages: 4 (984 words) Published: December 17, 2011
Title: Explain why companies use competitive bidding and explain the advantage of using it.

In the modern businesses, selecting the qualified suppliers becomes more and more important activities for the companies. Lots of companies use the method of competitive bidding, which is commonly used for selecting suppliers. Transparent procurement method in which bids from competing contractors, suppliers, or vendors are invited by openly advertising the scope, specifications, and terms and conditions of the proposed contract as well as the criteria by which the bids will be evaluated [1]. In this essay, I will try to explain the reason and the advantage of the companies using competitive bidding.

Main body
The reason of using competitive bidding
Ordinary, the companies’ need is fulfilled by the existing preferred suppliers as first choice, for example, the preferred suppliers in the Approved Suppliers List (ASL). But sometimes, there have not qualified suppliers in the ASL to provide products and services to the company, or there have so many suppliers can fulfill the need but none of them is the preferred supplier, at this situation, the firm may consider to select one or more qualified preferred suppliers by competitive bidding.

Buyer use competitive bidding when price is a dominant criterion and the required item (or service) has straightforward material specification [2]. It means that the firm to choose suppliers is base on the bidders’ quotation. The buyer’s contract make the bidding prices competitively, and then buyer will look for the qualified products and services at an appropriate price, actually the buyer commonly do not choose the supplier which quotes the lowest price in private industry for turning down the risk of obtaining unqualified products. The competitive prices show the buyer the real cost of products closely. Considering the bidders’ profits appropriately, buyer and bidder both satisfy the price, so that they can...
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