The eBid procurement model has for many years now been a popular way for buyers to secure suppliers, especially for commercial interior projects. Its appeal lies in its efficiency, transparency, and ability to drive down costs.
At face value, it seems like a win-win solution—buyers achieve lower prices, while suppliers gain access to a competitive marketplace. But beneath the surface, the eBid procurement model reveals a host of drawbacks that can negatively impact both buyers and suppliers.
While the immediate benefits of eBids, such as cost savings and speed, are undeniable, these short-term gains often come at the expense of long-term sustainability.
The following outlines why the eBid model can be short-sighted for both buyers and suppliers, focusing on the detrimental effects of a procurement system that prioritises the lowest price at the cost of quality, relationships, and innovation.
The Superficial Benefits
1. Lower Costs
For buyers, one of the biggest draws of the eBid model is the potential for reduced costs. The digital platform invites multiple suppliers to submit their best price, driving competition and pushing prices lower. Buyers will likely believe they’re getting the best deal through this highly competitive process.
2. Transparency and Accountability
The eBid system offers buyers a transparent, auditable trail of all transactions. This transparency can help buyers ensure that they are meeting internal governance and compliance standards, and that the bidding process is fair and equitable.
3. Efficient Procurement
Automating the procurement process allows buyers or their consultants to streamline workflows and meet tight deadlines. For large projects, where timing is critical, this level of efficiency is a major advantage.
However, while these benefits may seem substantial, they mask significant disadvantages, particularly for buyers and suppliers looking to create sustainable, long-term business value.
Why eBids Are a Short-Sighted Model
1. A Race to the Bottom Sacrifices Quality
In the eBid system, suppliers often feel pressured to reduce their bids to win contracts. While this can result in short-term savings for the buyer, the relentless focus on the lowest price can lead to a drop in quality. Suppliers may be forced to compromise on materials, craftsmanship, or services to meet the buyer’s budget.
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- Long-term costs: Buyers may find themselves facing higher long-term costs due to substandard materials that need replacing sooner, or poor workmanship that requires additional fixes.
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- Limited innovation: Suppliers in a price-driven competition may also cut corners on innovation. The pressure to reduce costs leaves little room for developing creative or innovative solutions that could provide better value over time.
Ultimately, buyers may save money up front but pay for it later through additional maintenance or by missing out on innovative solutions that could have enhanced their project.
2. Lack of Supplier Relationships and Loyalty
In traditional procurement models, the buyer could cultivate long-term relationships with suppliers, building trust and loyalty over time. This relationship-based approach allowed for better communication, a deeper understanding of needs, and the ability to resolve issues more quickly.
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- No loyalty incentives: With eBids, customers are less likely to foster these long-term partnerships. Each new project is put out to bid, and suppliers are encouraged to undercut one another to win the job. This creates a transactional relationship where the focus is solely on cost, rather than value, service, or expertise.
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- Communication gaps: Additionally, the lack of a long-term relationship often leads to communication issues, as suppliers may not have the same understanding of the client’s needs that a long-term partner would.
The absence of loyalty and deeper collaboration can result in missed opportunities for innovation, poor project alignment, and a lack of flexibility when unexpected challenges arise.
3. Inconsistent Performance
Buyers who use eBid procurement can experience inconsistency in supplier performance. By selecting suppliers based primarily on price, the buyer may miss the opportunity to evaluate other critical factors such as reliability, responsiveness, and quality of work.
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- New suppliers, new risks: Relying on a new supplier for each project increases the risk of inconsistency. Without a proven track record, customers may face suppliers who underperform or fail to meet their expectations.
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- Higher risk of project delays: When suppliers cut costs to win bids, they may struggle to deliver on time or maintain quality standards, leading to delays or additional costs for the customer.
This inconsistency can disrupt projects, increase stress for project managers, and lead to reputational risks for both the buyer and the supplier.
The Hidden Costs for Suppliers
1. Unsustainable Profit Margins
For suppliers, the pressure to offer the lowest bid in an eBid system can lead to razor-thin profit margins. To remain competitive, suppliers may reduce their prices to levels that barely cover costs, or worse, erode their profitability entirely.
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- Operating at a loss: Some suppliers may even submit bids that result in financial losses, simply to win a project and maintain market presence. Over time, these unsustainable margins can weaken the financial stability of the supplier.
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- Quality compromise: Suppliers under pressure to reduce prices may use cheaper materials, subcontract labour, or lower quality standards, compromising the final product to preserve profit margins.
The constant downward pressure on pricing creates an environment where suppliers cannot sustain long-term growth or innovation, ultimately damaging their business viability.
2. Lack of Differentiation
The eBid procurement model tends to commoditise suppliers, treating them as interchangeable based on price rather than their unique strengths or specialities.
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- Devaluation of expertise: Suppliers who offer niche expertise, superior customer service, or high-quality materials may find it difficult to communicate these differentiators in a cost-driven bidding environment.
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- Reduced innovation: Suppliers may feel less incentivised to invest in innovation or quality improvements if they believe a customer will simply choose the lowest bidder for the next project.
Without the ability to differentiate on factors other than cost, suppliers may struggle to stand out in a crowded marketplace, making it difficult to grow or sustain long-term client relationships.
Alternatives to eBids for Sustainable Procurement
For both buyers and suppliers, moving away from eBids toward a more relationship-based or value-driven procurement model could offer better long-term benefits.
1. Collaborative Procurement
Collaborative procurement models allow customers and suppliers to work together throughout the project lifecycle, fostering open communication, trust, and partnership. Customers benefit from consistent performance, while suppliers can differentiate themselves on service, innovation, and expertise.
2. Value-Based Procurement
Rather than focusing solely on cost, value-based procurement evaluates bids based on a combination of factors, including quality, innovation, sustainability, and past performance. This encourages suppliers to offer creative solutions without compromising on quality and allows the customer to achieve better long-term outcomes.
3. Long-Term Supplier Contracts
Establishing long-term contracts or frameworks with trusted suppliers can reduce the constant need to engage in new bids. It also fosters a deeper relationship where suppliers are incentivised to invest in quality, innovation, and sustainability.
A Model in Need of Rethink
The eBid procurement model, while seemingly effective at achieving short-term cost savings, reveals itself to be a short-sighted approach in the long run. For the customer, it can result in compromised quality, inconsistent performance, and missed opportunities for innovation. For suppliers, the constant pressure to reduce prices and the commoditisation of their services make it difficult to sustain profitability and growth.
Shifting to more collaborative, value-based procurement approaches could benefit both parties, leading to better project outcomes, stronger relationships, and a more sustainable business environment.
