Understanding Bid Analysis & How it Can Benefit Your Company
If you have a business that seems stagnant in terms of profit, then it may be time to start thinking about the ways that your business practices can be simplified, changed, or adjusted. It can be incredibly difficult for your own employees to complete the analysis for you that can help increase profits. This is one reason why you need strategic procurement sourcing consultants. These professionals can investigate the ins and outs of your business and also implement the software that can analyze data for you.
One of the things that consultants will do is complete a bid analysis. Keep reading to understand what this is and how it can assist you.
What Is Bid Analysis?
Bid analysis is a type of data and contract analysis that occurs when your business uses outside contractors to complete work or if you need to acquire raw materials to help you make your products. If you require the use of outside businesses, then contractors and other companies will bid on contracts. These contracts set the terms of the costs for the work or materials as well as the term limits of the contract itself.
Sometimes bids will not be in your business's favor as much as they should be. This can be hard to determine, but a bid analysis can help you to understand this. The analysis will involve looking at the bids you receive and the amount of competition for the bids.
Specifically, the analysis will look at the companies that have drafted a bid. Competition will be seen if there are numerous companies who have provided contracts and also if the contracts are in direct competition with one another. In other words, are companies actively bidding against one another to win your business?
Also, the analysis will involve the bid and where it lies in relation to initial costs produced by engineers or sourcing staff. If the awarded bid is higher, then the reasons for this will be considered. Also, if it is lower, this will be looked at as well. For example, if the bid is substantially lower than the estimates made by engineers, then why is this the case? How is the awarded company cutting costs and how can this relate to the services that are provided to your company?
When the analysis is completed, consultants will look for any signs of errors that may have contributed to inconsistencies in estimates and also the way that contracts were formulated. The possibility of bid rigging will be considered as well. This may be something that might be seen if all bids were far higher than then engineer estimates.
How Can Bid Analysis Help With Profits?
Bid analysis can help your business in a number of different ways. It can help you to understand how bids may not be competitive as they should be. For example, if one of your competitor's acquired a contract for raw stainless steel in 2016 for the low rate of .86 per pound, but the contract you acquired cost you closer to $1.00 per pound, then the consultants may ask you to open up bids to a larger group of bidders. After all, this could save you $700 or more on every 5,000 pounds of steel you procure over the course of one year.
Also, it bids are not consistent with projections, then mathematical errors can be considered over a wider scale. Since the estimates set the starting point for bids, the errors can be addressed and fixed. If these errors are noticed, you can also implement software that locates the same sort of inconsistencies company wide. Software implementation is one of the easiest ways that you can reduce cost accounting errors that are the result of basic human error. Reducing these errors can save your company thousands of dollars each year.