Transformation Bidding allows buyers to define cost factors to represent tangible and intangible costs in addition to the price of the goods or services, and incorporate these costs into the bidding, analysis, and award processes. For example a new and untried supplier (or a new manufacturing or shipping location at an incumbent supplier) exposes your buying organization to a higher risk of supply disruption simply because the buying organization has no experience of buying from the new supplier or from the new location. Conversely, buying from a tried and tested supplier or location reduces exposure to such risk. In either case, the buyer must account for these costs in the bidding process, and Transformation Bidding allows the buyer to do that
With Transformation Bidding, price factors can be defined as either Buyer and/or Supplier price factors, and the pricing basis of each factor can be set to either Per Unit, % of Line Price or Fixed Amount. During bidding and quoting, the quantified effect of all tangible and intangible costs factors is incorporated in each supplier's bid to compute a transformed Total Bid Price for each supplier, and the bid with the lowest transformed Total Bid Price receives the highest rank
Visibility of Transformed Responses
When defining the negotiation, the buyer has the option of exposing the transformed bid/quote prices to the suppliers. If a buyer chooses this option, then when a supplier enters a response in the Create Bid/Quote page, the transformed value of the response is shown on Review Bid/Quote page. The buyer always sees both the original response and the transformed response, and the ranking is calculated based on the buyer's view of the transformed response.
If the buyer chooses not to expose the transformed bid prices to the suppliers, a supplier sees no adjustment to the bid price, but the ranks that the supplier sees (assuming that ranks are displayed to the supplier) are still based on the buyer's view (the transformed view) of the Total Bid/Quote Price. Moreover, if this is an open negotiation (not blind or sealed), then a transformed view of the bid/quote price is displayed between suppliers such that factors assigned to one supplier are reflected in the bids/quotes/ of the other supplier and are not reflected in the viewing supplier's own bid/quote
Transformation Examples
Example 1.
Assume: Buyer applies a $5 price factor against Supplier B to reflect the risk associated with dealing with Supplier B. This example assumes suppliers do see their responses transformed and that multiple bids per round from the same supplier are allowed.
| Action | Supplier A then Sees | Supplier B then Sees | Buyer then Sees | Explanation |
| Supplier A bids $50 | My Bid: $50 Supplier B's Bid: No Bid Best Bid: $50 My Bid Rank #1 | My Bid: No Bid Supplier A's Bid: $50 Best Bid: $50 My Bid Rank: n/a | Supplier A's Line Price:$50 Supplier A's Bid Price: $50 Supplier B's Line Price: No Bid Supplier B's Bid Price: No Bid | Supplier A is the only participating responder at this time. |
| Supplier B bids $49 | My Bid: $50 Supplier B's Bid: $54 Best Bid: $50 My Bid Rank #1 | My Bid: $49 My transformed bid: $54 Supplier A's Bid: $50 Best Bid $50 My Bid Rank: #2 | Supplier A's Line Price: $50 Supplier A's Bid Price: $50 Supplier B's Line Price: $49 Supplier B's Bid Price: $54 | Due to the presence of the $5 price factor against him, Supplier B cannot hope to be the winning bid simply by placing a bid that is lower than Supplier A's bid. To beat Supplier A's bid, Supplier B's bid must be lower than Supplier A's bid by at least $5. |
| Supplier B bids $44 | My Bid: $50 Supplier B's Bid: $49 Best Bid: $49 My Bid Rank #2 | My Bid: $44 My transformed bid: $49 Supplier A's Bid: $50 Best Bid: $49 My Bid Rank: #1 | Supplier A's Line Price: $50 Supplier A's Bid Price: $50 Supplier B's Line Price:$44 Supplier B's Bid Price: $49 | Supplier B rebids becoming the winning bid |
Example 2.
Assume Buyer applies a $5 price factor against Supplier B to reflect the risk associated with dealing with Supplier B This example assumes suppliers do not see their responses transformed.
| Action | Supplier A then Sees | Supplier B then Sees | Buyer then Sees | Explanation |
| Supplier A bids $50 | My Bid: $50 Supplier B's Bid: No Bid Best Bid: $50 My Bid Rank #1 | My Bid: No Bid Supplier A's Bid: $50 Best Bid: $50 My Bid Rank: n/a | Supplier A's Line Price:$50 Supplier A's Bid Price: $50 Supplier B's Line Price: No Bid Supplier B's Bid Price: No Bid | Supplier A is the only participating responder at this time. |
| Supplier B bids $49 | My Bid: $50 Supplier B's Bid: $54 Best Bid: $50 My Bid Rank #1 | My Bid: $49 Supplier A's transformed bid: $45 Best Bid $45 My Bid Rank: #2 | Supplier A's Line Price: $50 Supplier A's Bid Price: $50 Supplier B's Line Price: $49 Supplier B's Bid Price: $54 | Supplier B has entered a lower response than Supplier A's initial bid. But due to the $5 penalty assigned to Supplier B, his transformed view of Supplier A's bid is calculated as $50-$5=$45. Since Supplier A's bid appears as $45 to Supplier B, to remain competitive, Supplier B must place a bid that is lower than Supplier A's transformed bid. This automatically forces Supplier B to enter a bid that is not only lower than Supplier A's original bid, but also includes the $5 price factor that applies to him. |
| Supplier B bids $44 | My Bid: $50 Supplier B's Bid: $49 Best Bid: $49 My Bid Rank #2 | My Bid: $44 Supplier A's transformed bid: $45 Best Bid $44 My Bid Rank: #1 | Supplier A's Line Price: $50 Supplier A's Bid Price: $50 Supplier B's Line Price:$44 Supplier B's Bid Price: $49 | Supplier B rebids becoming the winning bid |