5. What is Transformation Factor? How to use it?

What is Transformation Factor in the bidding?

Transformation Bidding  is a way of bidding that differentiate bidders (suppliers) based on monetary values rather than scores. Price compensation (Transformation Factor) can be applied to one or more bidders. This approach attempts to translate everything that the buyer knows or assumes about the suppliers into monetary values and reflect in the bidding prices. For example, the buyer needs to consider the switching cost for each supplier. Since there is no switching cost for the incumbent supplier, there is no need to adjust their bids. For other suppliers, the switching cost will be added to their bids automatically.

When do you need a Transformation Bidding?

Examples of transformation factors include switching costs, mold costs, payment terms, transportation costs, shipping costs, taxes or material concentration. The transformation factor is set by percentage or amount, so that the bidder's bid is adjusted upwards or downwards automatically.

You can configure transformation factor for each bid item or the entire RFX, so you can collect the total cost of the bidder and make decisions based on the total cost rather than the bidding price.

How does it work? -- Success story

Items to be purchased
1. Circuit board
2. PCB assembly

In this reverse auction, the buyer decided to invite two incumbent suppliers and two new suppliers to participate in the bidding. Compared to incumbent suppliers, the two new suppliers have shorter payment terms (30 days payment). The buyer also decided to add a switching cost for the new suppliers for the item "PCB assembly".

New suppliers have two transformation factors

Calculation of the bid prices including transformation factors

Who won the business?

Although SUPPLIER C submitted more competitive prices, after taking transformation factors into consideration, SUPPLIER A was awarded the business.

If you need further discussion, please contact TACTICA Customer Success Center ( Support@TacticaCommerce.com )


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