June 17, 2011
PURCHASINGB2B MAGAZINE: MAY 2011
The Hackett Group, which issues a metric-of-the-quarter report for procurement, is highlighting the percentage of total annual contracted spend that is competitively bid.
Hackett said the metric doesn’t specify who is doing the competitive bidding, or how well, although it does indicate competition is being used as a driver for lowering costs.
The data show for every 10 percent of additional indirect spend competitively bid, organizations will realize roughly an additional 25 basis points of savings on that spend. For example, $2.5 million annual indirect cost reduction savings can be realized per $1 billion in indirect spend.
“Even if competitive bidding techniques can’t be used…a spirit of healthy competition can still be created,” the authors say.
“Suppliers like to compete—if they have a reasonably good chance of winning. For procurement organizations that can use a wide variety of strategies and tactics to obtain the best value from suppliers, the benefits are compelling.” b2b