Mr. Sharma has a problem!
V.N. Bhattacharya
Independent Consultant - Business & Corporate Strategy; Adjunct Professor at IIM Bangalore, Former Visiting Professor at IIM Ahmedabad and XLRI Jamshedpur
Competitive bidding is a fascinating subject; it is as much about business as about the workings of the human mind. The desire to achieve results prompts individuals to adopt strategies that reveal lessons from Game Theory. This issue relates to one such story.
Standard Metals, a large and reputed producer of steel, has bid to supply steel sections and other steel products to India Engineering & Construction Company (IECC).The steel will be used for construction of a bridge over a major river.
All things being equal
IECC had floated a closed tender and invited twenty-three companies from India and abroad to submit prices for supply of steel. All bidders had been selected after a rigorous pre-qualification process.
The products of prospective vendors were approved after they had passed necessary tests. According to tender rules, the lowest bidder would be the sole supplier. If more than one quotes the lowest price, each will be given equal share of the business.
Standard Metals and one other company – Sterling Steel Mills, a much smaller firm in size compared to Standard – have quoted the same lowest price.
Fortunately, the winning price is reasonably profitable for both suppliers. In deference to their size and reputation, IECC have invited Standard first to finalise the order. Next they will meet representatives of Sterling to award the contract.
The Managing Director of Standard Metals has impressed upon Mr. Sharma, Vice President of Standard Metals, to wrest at least two-thirds of the business. He has been instructed to emphasise their size, reputation and history of good relationship with the Buyer.
In Mr. Sharma’s shoes
Mr. Sharma has at least two choices: accept what is offered, that is 50% of the steel requirement, or decline anything less than two-thirds of the volume.
If you were Mr. Sharma representing Standard Metals, what would you do? How would you handle the situation? What other cards, if any, would you play?
I would love to hear your comments. And respond to them in the next issue.
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Global Client Partner
7 年Ask Standard metal management for more price leverage and target to get 100% order. Never allow small fish to grow ! Keep beating and lead MS ( Market share ) .
Executive Manager @ PepsiCo | Strategy & Transformation
7 年Thank you Professor for this problem. This is indeed fascinating! Being in the shoes of Mr. Sharma, the VP of Standard Metals, I make the following assessment of the current situation: i) Although it is a much smaller bidder compared to me, Sterling Steel Mills is still in contention of the process. This obviously tells me that Sterling cannot be demeaned as it has passed all tests and initial scrutiny by the client. ii) 'The winning price is reasonably profitable for both suppliers.' But I am bigger and in the good books of the client already; hence the client has invited me first to finalize the order. iii) A conservative argument - There is profit even if I take the offer at 50 percent; A conundrum - My credibility in the industry will be dented if a minnow delivers the exact amount of work in a time "equal to mine or less than mine". I MUST HENCE DEFINITELY GET MORE THAN 50 % OF THE PROJECT. iv) My MD has instructed me to bring 66.7 % of the project, which is a meaty 33% more (compared to original 50%). A very ambitious number! I will use to my advantage the fact that I have been invited by the client before Sterling. This shows that the client acknowledges my capability and size. I will prove my competency and clinch some share of Sterling. (between 10% to 20% more than original, i.e. max 60 % of the project) This will ensure that I remain the bigger consortium partner and will not hurt Sterling very strongly, both at the same time. Also being the responsible big brother, I will never impede Sterling in its endeavour; carefully monitor its progress; and surreptitiously groom it to be my next acquisition!
Data Scientist | EDW | CVM | Big Data
7 年Submission from my side : as there is a size and capacity advantage I will 1) first congratulate second bidder and make the company comfortable to work together and get information if they will face any capacity issue delivering huge contract. If second bidder has no capacity issue and confident on delivery then no wrestle to get more than 50%.( no point in playing with reputation ) If second bidder has low confidence on their capacity then taking second bidder in confidence , will approach client for 2/3rd or 3/4th order .