The Auction

After submission of fixed price bids, a target price is established, lower than the lowest original bid, an arbitrary number. All acceptable bidders are then asked to meet or beat that price. Several rounds ensue, each at lower prices, until only one bidder remains. Final purchase order values can be a fraction of the successful bidder’s original quotation, which has become a meaningless exercise. The best technical offerings often are not a factor. The other factors in the offering that affect the life cycle cost of the product to be produced may not be factored into the evaluation. The bidders are seldom invited to explain, present, or discuss their offerings to those involved in the evaluation. The written bid on a very large and complex proposal cannot possibly cover all the fine points of the offer, particularly if it’s an imaginative fresh concept.

Imagine comparing bids that utilize dramatically different but effective approaches and then shaking down the bidders in an auction for the lowest price. One may obviously be better in the eyes of the engineer. He or she may not be willing to recommend the higher initial price, even though detailed study may show that the operation cost component offsets and even improves the actual total cost. Cost-sensitive management can be preoccupied with the very visible initial price readily compared to a project budget. The complex extrapolated total cost over the component life cycle can be a challenge.

The purchase price alone was more important than all the other factors including any thoughts of exploiting the culture of Yankee ingenuity for their own benefit.

Sweet and Sour Grapes
Sweet & Sour Grapes: The Story of the Machine Tool Industry
ISBN: 1587620316
EAN: 2147483647
Year: 2003
Pages: 77
Authors: James Egbert © 2008-2017.
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