Could More Supplier Quotes Improve Business Operations? 3 Metrics Can Help You Get The Best Value Supplier

Experienced hiring managers often use the term “best fit” when describing what makes a candidate the right hire. This means the candidate has the desired level of experience (but isn’t overqualified), will be satisfied with the offered salary (but may desire room to grow), and can execute against the job responsibilities with competency and experience (without struggling or becoming bored).

Similarly, procurement leaders know that awarding a contract to a supplier is an exercise in Goldilocks’ tasting the porridge: not too hot, not too cold; just right. Sounds complicated? That’s because our brains truly aren’t built for it. Humans are great at optimizing (e.g. for a single evaluation criteria) because keeping score on one criteria is pretty uncontroversial. If we are only comparing options on price, then it’s simple to see which option saves the most money. True value is more complicated (but much more impactful and rewarding).

If we’re really managing our sourcing teams towards this idea of “best fit” for a supplier, then it is super important to track metrics that align with improving our award optionality, both on price, qualification and performance. What are some metrics and key performance that we can track that will help with this?

1.     Median Competitiveness across all Sourcing Activities

Competitiveness is a simple metric to track, and it’s  a great way to highlight the value that your procurement team is adding through the supplier qualification process. Simply take the total number of suppliers responding to your opportunities as the denominator and the total number of suppliers awarded as the numerator. For example, if over a six month period your team had 42 suppliers submitting quotes for 12 contract opportunities (each of which was awarded to a single supplier), then the median competitiveness of your bids is 3.5 suppliers responding per opportunity.  Based on Arkestro analysis across our internal dataset, if your median competitiveness is above 3.2, your team is doing a great job engaging your supplier community and getting better deals for your stakeholders.

2.    Median Newcomers across all Sourcing Activities

Many procurement teams face a problem that we call “the usual suspects”. This means that even for bids with more than 3 suppliers responding, it’s the exact same suppliers every time. While you may think, “well that’s not so bad, they all know how to do business with entities like us”, the problem is that these suppliers are so comfortable with their marketplace that they are not truly motivated to compete. Suppliers that run into the same 3 or 4 competitors for every one of your contract opportunities will often not be motivated to give your stakeholders truly great value. For some categories, “the usual suspects” are fine. However, at scale the lack of new blood in your supplier portfolio can put an unfortunate ceiling on the amount of value that your procurement team can create through running a competitive sourcing processes. Thus, it’s important to measure the net number of new suppliers that submit bids for your contract opportunities, regardless of whether or not they are awarded. This is a simple ratio between net new submissions and the total number of bids submitted. For example, if 7 new suppliers submitted bids out of a total 42 bids, then your Median Newcomers would be .16 (e.g. 1/6). Based on Arkestro analysis across our internal dataset, if your median newcomers is above .14 (basically 1:7 ratio of quotes from new versus existing suppliers), then your team is doing a great job engaging your supplier community and getting better deals for your stakeholders.

3.     Median Responsive Suppliers across all Sourcing Activities

The idea of tracking the number of suppliers contacted versus the number of suppliers that “No Bid” isn’t new, but done at scale it can provide useful insights for increasing both Median Competitiveness and Median Newcomers. Using Arkestro internal analytics, we actually have a ranking for suppliers’ most common “No Bid” justifications:

1. Not enough time to secure approval for a quote
2. Specifications are written in a manner that they cannot meet (or believe is disadvantageous, e.g. favor one of the supplier’s competitors)
3. Person whose job it is to respond to submit quotes is OOO
4. Supplier registration process is too difficult or complex to access the relevant documents

By tracking and ranking these reasons internally, your team will have data to communicate to stakeholders the value of getting a bid out to your supplier community earlier and leaving the response window open for longer. Measuring median responsive bidders can be challenging because of the lack of collecting “No Bid” justifications, however the ratio is simple: “No Bids”/actual bids. For example, if you had 42 bid submissions and received 10 “No Bid” reports then your Median Responsive Bidders would be .238 (e.g. 10/42). Arkestro internal dataset isn’t yet mature enough for us to give a useful benchmark for what normal responsiveness looks like, but anecdotally this is the metric that is the most variant between different spend categories. For core categories, we estimate that it should be well over .9 (e.g. less than one of your suppliers on average fails to submit a quote when contacted for a mission critical item) and for marginal or tail spend categories it may be as low as .1 (e.g. if you request a quote from 10 suppliers, 9 may “No Bid” or fail to respond).

What’s the path to driving improvement on these metrics across all sourcing activities?

In order for your team to want to increase the number of engaged suppliers competing for your business, you will need to make sure that you aren’t creating more work. You need a system in place where more quotes does not mean more emails or more busywork . Solving this problem – increasing productivity in running a sourcing event – is exactly why we created Arkestro.

Arkestro is Sourcing Enablement for the Modern Business, helping you get better quotes faster. Sign up for your free account at arkestro.com/signup