Composite bidding refers to a method used in procurement to evaluate supplier offers by combining their bids across multiple items within a specific product category.
Based on the provided reference, a composite bid means the sum of a bidding supplier's weighted bids for all items within a product category for purposes of allowing a comparison across bidding suppliers.
Understanding Composite Bids
Rather than looking at individual item prices in isolation, composite bidding allows buyers to assess a supplier's overall cost competitiveness for an entire group of related items. This approach is particularly useful when:
- A product category includes numerous different items.
- Suppliers may offer lower prices on some items and higher prices on others.
- The goal is to find the supplier offering the most cost-effective solution for the entire category.
The weighted bids mentioned in the definition imply that different items within the category might have different levels of importance or volume, affecting their contribution to the final composite score. For instance, a frequently purchased item might be weighted more heavily than a rarely purchased one.
How Composite Bidding Works
The core process involves:
- Defining the Product Category: Grouping related items together (e.g., office supplies, IT hardware, cleaning products).
- Collecting Item Bids: Suppliers submit bids for each individual item within the defined category.
- Applying Weighting Factors: Assigning weights to each item based on criteria like historical usage volume, strategic importance, or estimated future demand.
- Calculating the Weighted Bid per Item: Multiplying the supplier's bid price for an item by its assigned weight.
- Summing Weighted Bids: Adding up the weighted bids for all items in the category to arrive at the supplier's total composite bid.
This calculation provides a single, comparable number for each supplier across the entire category.
Example Scenario
Let's consider a simple example for an "Office Supplies" category with two items: Pens and Notebooks.
| Item | Weight (e.g., based on volume) | Supplier A Bid | Weighted Bid (A) | Supplier B Bid | Weighted Bid (B) |
|---|---|---|---|---|---|
| Pens | 70% | \$1.00 | \$0.70 | \$1.20 | \$0.84 |
| Notebooks | 30% | \$3.00 | \$0.90 | \$2.50 | \$0.75 |
| Total | 100% | \$1.60 | \$1.59 |
In this simplified table:
- Supplier A has a lower price for Pens but a higher price for Notebooks.
- Supplier B has a higher price for Pens but a lower price for Notebooks.
- The composite bid calculation reveals that, overall (with the given weights), Supplier B's offer results in a slightly lower composite bid (\$1.59) compared to Supplier A (\$1.60).
This comparison across bidding suppliers using the composite bid helps procurement teams make a more informed decision about which supplier offers the best value for the entire category, not just individual items.
