Today's procurement systems are largely built on purchaser/vendor mistrust, the lack of rigorous purchasing procedures and a lack of tools that can be used to compare bids and assess value. Going for the cheapest option and laying the risk on the vendor looks attractive, in the short term, but is far less effective in the long term.
Traditional Procurement Systems and Practices Are Problematic. Ask purchasing professionals about the problems they face purchasing on-trivial products and services and they will typically come up some or all of the following:
Today's procurement systems reached this point because they are largely built on purchaser/vendor mistrust, the lack of rigorous purchasing procedures and a lack of tools that can be used to compare bids and assess value. Going for the cheapest option and laying the risk on the vendor looks attractive, in the short term, but is far less effective in the long term.
Value-based purchasing requires you to buy the goods or services that produce the best overall value. For example, if company A offers to build a software system that costs 5 million but yields 10 million in added revenue, then company A’s bid has a net value of 5 million. In contrast, if the system offered by company B costs 10 million but returns more than 40 million in added revenue, then company B’s bid has a net value of more than 30 million.
Under a traditional procurement approach, company A's bid [the low-cost solution] would win the contract. Under value-based purchasing, company B wins, paying more up front but receiving much more in return over the long term.
Value-based purchasing can take many forms. In some cases, the benefit may be measured in an expanded set of services provided by one vendor's solution over another. In other cases, the winning bid may involve a system with higher initial costs but lower life-cycle expenses and easier updating capabilities.
Your problem is how to judge the value of competing proposals; a task that isn't easy when dealing with large or complex bids.
To help you with your decision making, we have our Value Based Procurement methodology
The Lucidus approach to Value Based Procurement combines a number of approaches to the procurement process. It aids you by helping you with: