Conduct Procurement

[nazrulq]

Question :Larry is the project manager and working with procurement department of his organization to do procurement for his project. Procurement department said these are usual commodities and same has been procured many time. Also as this has been procured multiple times, generally they receive response from 4-5 vendors for this procurement. To everyone’s surprise, almost 10-15 vendors responded and two of the bids are evidently lesser than independent estimate Larry has created. What can be the best explanation for lower bid in this scenario?

1.Price for the commodity in current market changed due to change in demand/supply for it

2.Procurement SOW created by buyer was not clear enough for seller to make out the requirement

3.Procurement SOW created by buyer was clear but seller understood it incorrectly resulting lower bids

4. Bid document supplied by seller is having formula mistake resulting in lower bid

Correct Answer : Option 1

I initially thought Option 2.

But the reasons are those commodities are procured many times. So scope is clear enough. Market Price has changed may be reduced so that more vendors have submitted bid!

The Question is not clear enough. For some question Option 2 is correct.

Can Manish explain the difference of choosing options specifically which one is the closer one by elimination!

[manishpn]

Question :Larry is the project manager and working with procurement department of his organization to do procurement for his project. Procurement department said these are usual commodities and same has been procured many time. Also as this has been procured multiple times, generally they receive response from 4-5 vendors for this procurement. To everyone’s surprise, almost 10-15 vendors responded and two of the bids are evidently lesser than independent estimate Larry has created. What can be the best explanation for lower bid in this scenario?

1.Price for the commodity in current market changed due to change in demand/supply for it

2.Procurement SOW created by buyer was not clear enough for seller to make out the requirement

3.Procurement SOW created by buyer was clear but seller understood it incorrectly resulting lower bids

4. Bid document supplied by seller is having formula mistake resulting in lower bid

Correct Answer : Option 1

I initially thought Option 2.

But the reasons are those commodities are procured many times. So scope is clear enough. Market Price has changed may be reduced so that more vendors have submitted bid!

The Question is not clear enough. For some question Option 2 is correct.

Can Manish explain the difference of choosing options specifically which one is the closer one by elimination!

Its easy to attack this question it if one has done a lot of procurement in real. the best way to deal with this is through elimination.
'Procurement department said these are usual commodities and same has been procured many time.'
when it comes to procuring standard commodities then you don't really need to describe a lot of requirements and neither there is chance of misunderstanding the same so option #2 and #3 are ruled out.
and there is no need to detailed formula etc as its standard commodity , at the most you need multiplication formula to calculate total price from per commodity price.
Hence option #4 is also ruled out.

[anand.sutar]

Lesson learned is,
This is more than one minute question, and need to understand the situation and as per situation associate factors to whom we suppose to deal.

Situation is regular order, so regular order it is a repetitive work, so MOSTLY no one will do the market research, since it’s may be already done by organization procurement department, and may be organization has put some bracket/ range of it.
E.g like ordering stationary. So our Organization and Larry are correct with procurement cost.

Now consider the seller part, they are continuous of supplying this items and definitely know the exact cost.

Might be old vendors will raise same quote because they know buyer is past history of buying at this rate. but here it’s mentioned that new quote also received which was less.

This scenario shows Buyer is correct, seller is correct at his procedure but new seller quoted low, due to change in demand / supply with latest price.

[PCS]

I differ with the above discussions.
As per me, correction option is C - Procurement SOW created by buyer was clear but seller understood it incorrectly resulting lower bid

Sellers will be/ought to be careful in submitting repetitive bids too - economic situation( inflations)/price adjustments.
Majority of them submitted with probable price(here you can not distinguish who new/old seller).
Only reason could be that those sellers misunderstood the Buyers procurement docs.

Manish please correct me ?

Regards,
PCS

[manishpn]

I differ with the above discussions.
As per me, correction option is C - Procurement SOW created by buyer was clear but seller understood it incorrectly resulting lower bid

This can be true if it was a standard commodity or a complex services procurement

Sellers will be/ought to be careful in submitting repetitive bids too - economic situation( inflations)/price adjustments.
Yes but stuff like Inflation/Price Adjustment does not apply for standard commodity buy


Majority of them submitted with probable price(here you can not distinguish who new/old seller).
Only reason could be that those sellers misunderstood the Buyers procurement docs.
Question mentions that its standard commodity procured several times before, and there is very unlikely that it will be misunderstood


Manish please correct me ?

This is my view but I maybe wrong

Regards,
PCS