This paper analyzes and summarizes the price management strategy in bidding and procurement. The author analyzes more than 20 different price management strategies in seven categories from the two dimensions of quotation system management and price level management, combined with practical application scenarios, covering the dimension, granularity and model setting strategy of quotation, price comparison and related control strategies, price limit range and price scoring guidance strategy, etc., and explains in detail through specific examples. The methods and strategies summarized in this paper are applicable to various categories with different industrial supply, different technical characteristics and different market environments, and have strong guiding significance and practical value for subsequent bidding and procurement.
Price management is the core content of bidding and procurement. In daily bidding and procurement, price management covers the whole process of bidding and bidding, from the demand for project establishment, the formulation of bidding plans, the implementation process of bidding and bidding to the implementation of bidding results, etc., are inseparable from the management of price analysis. How to balance the relationship between the present and the future, the near and the long, the efficiency and the cost, how to coordinate the input and output of product upgrading, and how to maximize the value of procurement through effective control and guidance are the topics that the tenderers need to think about for a long time. Here, the author will analyze the composition and content of prices in bidding and procurement from different dimensions and scenarios, and divide them into two dimensions: quotation system management and price level management, and put forward several effective price management strategies for discussion and sharing.
First, the quotation system management strategy
The quotation system is the premise and basis of price management, which stipulates a series of basic attributes such as the scope, unit, and structure of the price. The creation and adjustment of the quotation system can often directly affect the supplier's quotation strategy and final purchase price. The effective management of the quotation dimension and quotation system can guide the supplier's quotation from the side, so as to control the overall procurement cost.
(1) Quotation dimension management strategy
The quotation dimension refers to the effective range corresponding to the quotation, for example, for the same functional software, it can be quoted from the number of satisfied users, or from the supported hardware units, which requires the procurement personnel to fully consider and measure at the beginning of the preparation of the procurement plan. The quote dimension strategy has the following three points.
1. Market business dimension
For products that are strongly related to the market business, quotations are made according to the dimensions related to the market business, such as the number of users, traffic volume, etc., which can better balance investment and income.
2. Network construction dimension
For products that are strongly related to network or engineering construction, quotations are made according to the dimensions of network or construction indicators, such as the number of ports and carrier frequencies, which can intuitively reflect the network capacity or construction scale.
3. Physical quantity dimension
For non-core essential products, it is simpler and more efficient to quote according to the actual physical quantity of the product.
(2) Quotation granularity management strategy
The granularity of the quotation refers to the size of the corresponding range of the quotation, such as whether to quote a device as a whole or the software and hardware separately, or whether it is necessary to quote according to the components of the board. The granularity of quotation is mainly based on the requirements and judgment of purchasers for future price control. Purchasers need to consider the value of the product, the supply chain, the technical characteristics and future evolution, and the impact on the company's market and revenue. The strategy points are as follows.
1. Single quotation management
For core products and components, products with complex technology and continuous evolution, and key products and services that may affect procurement costs or company revenues in the future, it is best to make a detailed quotation for a single product or material in order to facilitate subsequent price control.
2. Merge quotation management
For products and services that have little impact on the development of the company or category and have a low proportion of value, the quotation and order efficiency can be appropriately considered and the quotation can be combined.
(3) Quotation model management strategy
The quotation model refers to the composition of the product configuration used to evaluate the price level. The quotation model needs to be comprehensively considered in combination with the current demand situation and the prediction of future demand, and affect the overall quotation level of suppliers by adjusting the allocation weight of different products, so as to indirectly control the product price. The scope of the quotation model is determined according to the scope of products managed by the need, and all products that need to be controlled by price can be put into the quotation model, and at the same time, in order to better use the quotation model for price comparison and horizontal management, the configuration principle of the quotation model should be equal and fair to avoid bias. The 3 common pricing model strategies are as follows.
1. Increase the weight of model configuration
For products with higher prices or key control measures, the allocation weight in the quotation model can be appropriately increased, so that the supplier can give priority to making appropriate concessions on the price of the product under the pressure of maintaining the quotation advantage of the overall model.
2. Reduce the weight of the model configuration
For products with low value or small expected demand in the future, the allocation weight in the quotation model can be appropriately reduced to reduce its impact on the quotation level of the supplier's overall model, forcing the supplier to transfer the price reduction pressure to the high-weight product.
3. Individual model management
For some products that need to be managed horizontally, a small quotation model can be built separately to compare and intervene in the price level.
(4) Example application
The following takes the quotation system of the wireless main equipment, that is, the base station procurement project, as an example, and describes the above three quotation management strategies in detail.
Due to the large number of station types of base stations, each station type requires different main equipment products and supporting auxiliary material products configuration, so the quotation model of the base station is relatively complex and divided into two levels of quotation system. In the first-level quotation system, the total price of the model is obtained after weighting each station type according to its own scale (see Table 1), and in the second-level quotation system, each station type is configured by different main equipment products and supporting auxiliary materials according to the unified configuration principle and the actual technical capability of the equipment (see Table 2).
Taking Table 2 as an example, from the perspective of quotation dimension, hardware products are generally quoted according to the physical quantity dimension, while software products are generally quoted according to the dimension of network construction, that is, the carrier frequency is the unit; from the perspective of quotation granularity, the key main equipment hardware products generally use a single quotation, and some low-value supporting auxiliary materials, such as BBU fixed installation (mounting parts, straps, cable ties, screws, nuts, etc.), BBU grounding (copper nose, grounding bar, grounding wire, etc.), cables (power cable, synchronous cable, alarm lines, etc.) are packaged in the BBU basic unit for consolidated quotations.
Second, the price level management strategy
The loss of control of the price level will bring risks such as high procurement costs, unbalanced prices, and low prices that cannot be implemented in the future, which will directly affect the interests of the purchaser. Therefore, price level management is the ultimate goal of price management, including the upper and lower price limits, current prices and subsequent prices, overall prices and individual prices.
(1) Price comparison strategy
In the management of price level, price benchmarking is an effective control method, which can control and limit the price of new products through the comparison of BOM composition and functional complexity between products. There are two common price comparisons.
1. Single-product dimension
(1) Comparison with the unit price of the same type of products: In the case of more comprehensive price data of similar products, the price comparison of similar products is the most accurate price management method, which is also conducive to the game of price negotiation.
(2) Unit price comparison with similar types/categories of products: The price of this type/category of products is still unstable, and the price of products of this type/category can be analyzed and compared with products of relatively mature types/categories in the market.
(3) Comparison of product unit prices between different suppliers: Categories or products with large differences in quotations between suppliers can be managed horizontally through price analysis and comparison between suppliers.
2. Model dimensions
(1) Model comprehensive price comparison in the industry: In view of the commercial sensitivity in the industry, if the price data of a single product cannot be obtained, the comprehensive cost level of the purchaser's model can be managed through the model comprehensive price comparison published by other units in the industry.
(2) Model price comparison with similar categories: The comprehensive cost level of different categories can be compared from the model dimension, which can be used as the basis for comprehensive cost management of categories.
(3) Model price comparison between different suppliers: In view of the large difference in supplier quotations, the comprehensive cost level of different suppliers can be compared from the model dimension, so as to carry out the horizontal management of the comprehensive cost of suppliers and the management of the comprehensive cost of the category.
(2) Price-related strategies
The price correlation management strategy between products is to associate and lock the prices of different products with specific rules, and rationalize the overall price level of products by optimizing the price correlation coefficient between products. For scenarios where the product configuration is more complex, the application scenarios are diversified, and the order demand is more flexible, the price-related management strategy can well balance the price level between products, avoid the unreasonable situation that the manufacturer's quotation for the whole machine is low, the quotation for spare parts is high, and the price of each component of the product is more reasonable. The following are common price correlation methods.
1. Product dimension
For systematic products with many product models, the price correlation between the same type of products is carried out according to a certain coefficient, and the profit price distribution of suppliers is locked to avoid unbalanced quotations.
2. Category dimension
The price correlation between different categories is carried out according to a certain coefficient, and the price level of new categories is controlled by relying on the price management results of mature categories.
3. Branch dimension
For large companies with many branches and sales offices, the prices of branches and sales offices are correlated with each other according to a certain coefficient to guide the price balance between regions and branches.
4. Supplier dimension
For the situation that the quality and service of suppliers are uneven, based on the price difference management of quality or service quality or service quality, the price difference coefficient management is carried out through the quality testing, service evaluation and supply situation of each supplier, and the price level of each supplier is horizontally controlled to motivate suppliers to further improve and optimize.
5. Intra-industry dimensions
For small enterprises or products that do not have an advantage in the game with suppliers, they should be correlated with the price level in the industry to avoid over-quotations from suppliers.
6. Assign dimensions
For scenarios where some suppliers have obvious bidding advantages, the quotation and the allocation strategy are established to establish an association mapping relationship, dynamically determine and adjust the winning share for different quotations, and provide certain price reduction incentives to control the quotation of the top supplier.
(3) Price scoring reverse guidance strategy
The bidding project will use the price scoring method that matches the project for scoring, and different price scoring methods will directly affect the bidder's price bidding strategy, so it is also a common means of price management and guidance. Different industries have different product characteristics, different market scale growth, different key points and difficulties, and the scoring methods used are also different. Purchasers should comprehensively consider various factors such as different product types, different market competition, and different profit margins, and choose different scoring methods to guide the price level of products to be rationalized.
1. Common price scoring methods
The price scoring methods are mainly divided into two categories: linear scoring method and benchmark value method, which are suitable for different price control objectives.
(1) Linear scoring methods include inverse method, λ value method, linear insertion method, interval linear score, inverse difference method, etc. Its main feature is that the lowest price gets a full score, the highest price gets the lowest score, and the price score of other manufacturers shows a gradual downward trend. For products with high market scale growth, corresponding profit margins, high degree of standardization, and low barriers for new manufacturers to enter the industry, price competition can be promoted through the scoring method in order to purchase more favorable products. For this type of product, this type of scoring method can effectively stimulate competition and guide suppliers to reduce prices.
(2) The benchmark value method includes the average value method (downward guidance median price scoring method), the quadratic average method, the reference point correction method, the K value comparison method, etc. Its main feature is that the lowest price is no longer full score, but the best price is full score, and other price scores are deducted accordingly by calculating the deviation value from the best price, and the price score curve is in the shape of a crest. For products with complex technology, low market scale growth, limited number of potential suppliers, weak industrial chain and high industry barriers, more consideration should be given to the comprehensive level of manufacturers, and this kind of price scoring method can be used to guide the price to tend to the industry average level, ensure product quality, and avoid manufacturers blindly using low prices to win bids and ignore the later implementation of the landing.
2. Price range management
The highest limit price and the lowest guide price will also be introduced in the price scoring to further control the bidder's quotation range.
(1) Ceiling Price: Analyze the Ceiling Price according to cost analysis, price comparison data and future price prediction. The maximum price can be a fixed value or an unfixed variable (such as dynamic correlation with other data), and the appropriate use of the maximum price limit has a great effect on bidding and negotiation, controlling the reasonable purchase price and protecting the interests of the purchaser.
(2) Minimum guide price: According to the analysis of product price and cost, determine a reasonable minimum guide price, and reduce the motivation of suppliers to quote below the minimum guide price in the scoring method (if equal to and below the minimum guide price are awarded full marks), so as to avoid potential risks in quality and execution caused by too low quotation.
3. The whole life cycle cost is included in the price score
For high-energy-consuming products such as air conditioners, the cost of electricity in the subsequent use process is much higher than the procurement cost of the product itself, therefore, for such products in the bidding process, the cost in the subsequent use process can be considered into the price score. Cost items in the subsequent use process can be broadly divided into the following three categories.
(1) Electricity cost: For high-energy-consuming products such as air conditioners, switches, and servers, the whole life cycle electricity cost will be included in the price score.
(2) Maintenance service fee: For base station equipment, IT network equipment, power supply equipment, network support, transmission equipment, etc., the maintenance period of the first purchase can be appropriately extended, and the follow-up maintenance cost can be included in the price score.
(3) Follow-up expansion fee: For products with a high proportion of subsequent expansion such as base station equipment and transmission equipment, and it is difficult to negotiate the price of subsequent expansion, the expansion configuration principle can be set in advance, and the subsequent expansion price can be included in the price score of the first new equipment purchase according to a certain proportion.
(4) Example application
Taking base station product procurement as an example, the above three price level management strategies are elaborated in detail.
1. Price comparison strategy
Due to the particularity of base station products, the frequency bands of different operators in the industry are different, and it is difficult to find exactly the same products for horizontal comparison, and can only be compared with similar products with comparable technical levels. In addition, due to the differences in the quotation system of each operator, it is of little significance to compare a single hardware or software product, and it is necessary to compare it from the dimension of the comprehensive cost of the whole station.
As shown in Table 3, if you look at a single product, such as the baseband module, the price of the two operators may be very different and not comparable, but compared with the total price of a single station, there is a high probability that there is little difference between the similar station types of the two operators. This is mainly due to the fact that the two operators have different quoting rules. Therefore, it is important to choose the right dimension when comparing prices.
2. Price correlation strategy
Since there are many types of software and hardware involved in the quotation, it is easy to have an imbalance in the quotation, so on the basis of a comprehensive analysis of the technical capabilities, BOM cost and scale effect of each product, the corresponding price correlation coefficient can be set between various types of hardware such as baseband modules and RF modules, between various software such as carrier frequency licensing, and between the overall software and the overall hardware, so as to ensure that the quotation system of each supplier is reasonable and controllable. Table 4 shows the price correlation of some hardware products, and the corresponding coefficients can be set between software products and between software and hardware.
Taking Table 4 as an example, the supplier only needs to quote for the benchmark model, and the prices of other models are automatically calculated based on the price correlation factor.
3. Price Scoring Reverse Bootstrap Strategy
In the bidding and procurement of base station products, considering the high technical complexity of the subject matter, the great impact on the network, and the limited number of potential bidders, the maximum price limit and the minimum guide price are usually set at the same time, and the guide price is within a reasonable range, and the price competition is not blindly pursued. At the same time, based on the special attributes of the wireless communication network, after the first phase of public bidding determines the region and share of each supplier, each subsequent period can only be expanded on the basis of the layout of the first phase, that is, the subsequent phases can only be procured by means of single-source negotiation, which is more difficult to negotiate. Therefore, in the first phase of bidding, it is necessary to include the new construction price and the subsequent expansion price in the price score at the same time, control the subsequent expansion price through the public bidding of the first phase, and also consider including the maintenance service fee of the whole life cycle into the first phase of the price score.
3. Summary
The above are more than 20 price management strategies in seven categories discussed and summarized in this article, which can be widely used in daily bidding and procurement, assist procurement personnel to guide and control procurement prices, protect the interests of both parties in bidding and bidding, and maintain the stable and healthy development of the supply chain, which has strong practical significance and promotion value.
Author: Zhao Na, Zhang Yan, Yang Xinming
Author's Affiliation: Supply Chain Management Center, China Mobile Communications Group Co., Ltd
Source: Bidding and Procurement Management, Issue 9, 2023