Best Value

Mar 15, 2016 | Articles

By John Sheehy.  President, NSRMCA.

Have you ever wondered what the difference is between lowest price and best value?  On the surface, it would seem in most cases the lowest price is the “best value”.  I can think of many instances where the lowest price is not always the best value.  For example, there was a test I read about recently where two tires were compared.  One tire was significantly lower in price than the other tire.  One would think that the lower priced tire was the best value, except that during operational tests the more expensive tire proved to offer better fuel economy.  The improved fuel economy when extrapolated over the life of the tire showed the more expensive tire had a significantly lower total cost of ownership than the cheaper tire.  Can a process like this really be a successful way to evaluate a contract?

During the very well attended Las Vegas Regional meeting, the 5 contracting officers tag teamed a very informative presentation revolving around best value in postal contracting.  Preparing a transportation proposal today is much more involved than just presenting your best price.  Price is certainly a very important factor but the ability to show lowest cost or best value looks to be what the contracting officers are challenged to evaluate today.  I believe this is great news for an industry that has been driven to very low to zero operational margins over the past 10 years.

As a supplier, you are now challenged to present a case that you are the best value to the USPS.  This still may be lowest price, but the other factors that will come into play.  An example will be Environmental Sustainability.  In a proposal, the supplier will need to present their plan to be environmentally sustainable.  This may mean the ability to use alternative energy, which was another topic discussed in depth at the meeting.  Or it may mean the supplier needs to present a plan on how their company plans to be more fuel efficient or how tires or other items are recycled.  Sustainability is not just the use of alternative fuels it can be way more involved than that.  Past performance will be documented and evaluated to make sure the supplier can provide the service standards required in the solicitation.

Another item that will have a bearing on a successful offer will be the capabilities and the financial strength of the business.  The USPS wants suppliers that have organizations that promote good business practices, are able to evolve and make changes and can survive financial challenges as needed during an ever changing business environment.

These are great strides being made in the industry, but like all other evolutions there can be some pitfalls. Eval- uations if not completely quantified can be very subjec- tive. One need not go far to find great examples of the difference between subjective and objective.  In sports a good example of objective would be a football game where the winner is the team with the highest score, while a figure skating event is subjective to the judges scores.  I would contend the new bidding process is more like the figure skating event, and could lead to some unintended consequences down the road.

Working in this new environment will certainly have its own set of challenges.  Learning how to make a very objective proposal will be key to your future success.  This will mean a supplier will need to track more data, know how to present that data and run the business very professionally.  Understanding of the operational requirements of a proposal; knowing what is most important to the contracting officer for a specific proposal.  What things have the most value in a proposal; does sustain- ability have more value than lowest price for example.  Will you be able to show the contracting officer that over the term of a contract that a higher initial price has a lower overall cost similar to the tire example above?  These are the challenges facing all of us.

I am very encouraged by the direction the industry is heading.  It will not be without its challenges, but we are on a new and exciting path.  Working cooperatively is moving the industry forward.  Thank you to all who attended a very successful Western/Central regional meeting.

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