Core Bidding: Relying on a Supplier Group Cuts Work, but Takes Work

From "Buying Custom P-O-P" Ever wake up in the morning and say: "Let's re-invent a wheel today"? Nobody wants to duplicate effort, and that, at its simplest, is the primary appeal of a "core bidding" approach to buying P-O-P. When a brand makes a strategic decision to focus its spending, over time, within a core group of producers (at least three, sometimes more), the rationale is to reduce planning time, risk and overall development costs. Greg Gunderson says Andersen Windows relies heavily on its supplier core: "We know the vendors' capabilities and, as they know ours, it makes for a smoother project. We may pay a little more but the reduction of mistakes is well worth it, in the long run." Gunderson selects his P-O-P producers based on quality and the service they can provide. "And chemistry," he adds, "which is especially important in crunch time." Richard Nathan, CEO of RTC Industries, Rolling Meadows, IL, sees growth in these types of structured relationships as clients concentrate their in-store marketing efforts: "Today, customers only want to do programs that will have a material impact on their business and really move the needle. They have too many responsibilities to deal with small projects like quickie requests from field sales guys. That kind of work is going away. The big CPGs think big: attack entire store sections or mount big, coordinated brand-building events that everybody -- from the retailer's category team to the brand's sales and marketing managers -- will sign on to and remember." The phrase "vendor reduction" strikes fear in some hearts, but as Microsoft's Bill Brownell told Congress attendees, "It's too expensive to deal with them all." That doesn't mean he goes easy on his core producers: "They need to take on more roles for me. If they're not thinking about being more efficient in their business, they're going to lose with me. If they're not thinking, 'I've got contacts in China,' or 'I can do this for X amount of dollars,' they will slowly get squeezed out of the mix." Ideal's Scott Eisen agrees: "For legal and price comparison reasons, CPGs must keep people somewhat at arms length. But there's comfort in having a group of producers that they know how to do business with. The natural price competition is still there, but you do not have the inefficiencies of constantly breaking-in new suppliers on every line." Consortium's Clint Oberst says that pricing leverage can be built into vendor reduction plans: "When you buy components in small quantities, you pay a lot for machine set-ups and that drives prices higher. With fewer suppliers, you have fewer people making specifications and you increase the opportunity to utilize common components such as power wing clips, corrugated fillers, thermoformed product inserts or wire grid panels, across multiple executions. It's much easier to manage this process with fewer suppliers." Wetzel's Mike Draver, on the other hand, sees the client benefit in terms of design: "The customers that are going to just three or four producers tell you the budget. Now you can win it with creativity. It's not just about aiming for lowest price anymore. It is about the best idea for a set price. That's a pretty good business practice because that's going to get the best idea out of me." But be careful, counsels Array Marketing's Rick DeHerder. Core bidding works well when the requested display units are already optimized from a design standpoint. That will keep pricing in check within the group. "The weakness is that this process has limits in terms of taking a more strategic supply-chain approach to wringing costs out of the business," he says. "For example, a bid may be released for fixtures with a wood infrastructure. The core-bid process will secure a very competitive price on this unit, produced in this way. But it will likely miss the potential benefits of an alternative approach, such as designing with a metal core, that might further reduce costs and increase flexibility in-store." That flexibility is a two-edged sword. When the dominant P-O-P-industry business model is speculatively driven, most producers will start every year with very imprecise revenue forecasts. That makes them reluctant to invest in internal capabilities. "The stability of a structured, committed relationship," says Nathan, "enables a producer to extend his resources into new areas: different forms of research focused on shopper insights; capabilities within the design arena that extend far beyond the traditional industrial design model into the communications and messaging areas; and greater depth in traditional services such as model shops and production capacity." Keith Arndt, vice president of creative services at Mechtronics, White Plains, NY, says the sharing of sensitive information is critical to the quality of any given program: "Relationships that are rooted in environmental and ongoing relationships, as opposed to transactional business, allow for a cumulative learning experience and the sharing of ideas. This same level of creativity and cost control could not be accomplished by someone just coming in and submitting a good sketch for a display."When you are in a core group of suppliers, you have to maintain an organizational commitment, says Draver: "The sales and design people should be interacting with their counterparts on the brand or purchasing teams on a daily basis. At the executive levels, our senior people try to meet with the counterparts -- vice presidents of merchandising, branding, marketing -- so you have multi-level relationships. That way, conceptually, they see us as a company and not just a salesperson." There are any number of core bidding business configurations. Jack Briggs, vice president of national P-O-P sales for Imagine Print Solutions, Shakopee, MN, says that in one core bidding relationship, the members of the group "have agreed to all submit designs and then bid on each other's work. Our client then pays the losing companies for their design time. It's not the way we prefer to do business, but this is the only way we'll be able to proceed with this customer, so we've decided to participate." Other core groups are contractually based and tied to incentives or rebates based on pricing formulas. In exchange for these terms, the brand pledges to make every effort to give certain producers a percentage of business, with the specials terms falling away if they don't hold up their end of the bargain. Other CPG companies contract with supply-chain-management firms (the most notable, perhaps, being Madden Communications, Wood Dale, IL) to procure all or part of their P-O-P needs. The goal is to outsource the hassles of bidding to specialists who can bring order to the multiplicity of transactions required for large-scale merchandising programs. To the vexation of some P-O-P company executives, who see themselves both competing with and seeking business from these supply chain firms, they defy simple pigeonholing. They're not traditional brokers, nor are they producers, nor are they promotions agencies. They do have, however, a reputation for running a tight ship with "sealed bidding." One producer describes it: "A small number of similar competitors have to submit prices or designs on a specific date.If you win the design stage with your creative, you are allowed to be the sole 'developing' vendor for one or two production runs. This part of the process is respectful of intellectual property and encourages us to put our best creative out there. Then, after a few production runs, we know we will be cross-quoted in the sealed-bid process and have to get very tight."Most core bidding relationships, however, are probably managed less strictly. "You've got a group of guys that you say you're going to give business to," says Eisen. "They, in turn, are going to give you a little more design time and effort, and they'll take care of your problems a little faster. In that arrangement, you just have to trust that there will be some loyalty to the core."

Core Bidding: Relying on a Supplier Group Cuts Work, but Takes Work

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