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Bid transformation is useful for helping you to fairly and consistently factor the differences between suppliers and their offerings into your awarding decisions.and bringing dissimilar suppliers and their offerings into competition.
For example, you need to buy raw materials for a plant in the United States and are considering two suppliers: one is local and one overseas. The overseas material is less expensive, but you must ship it much further. The price of the overseas material, plus the extra shipping costs, equals the cost of buying it locally. Therefore Bid Transformation template allows you to design an auction to bring the two suppliers into competition. You set up the auction to automatically include the shipping costs of the material in the prices that the participants bid.
Thank you so much Aditya...
Might want to take it further, because the shipping cost example might be considered a Total Cost auction by some. Another traditional example of a Transformation auction is when you have an incumbent bidding against suppliers that are not current vendor. Imagine that you have a switching cost of say 5% to change from the incumbent to a new supplier. Even if a new supplier was winning, you wouldn't want to change to them unless their bid was at least 5% cheaper than the incumbents. With a transformation auction, Ariba Sourcing will show the bids or ranks to the suppliers based upon the transformation factor.
For example, Supplier A, incumbent, bids 100 and Supplier B, new supplier, bids 98. Without a transformation auction with a transformation term, the new supplier would see they are ranked #1 and stop bidding. If you add a 5% switching cost, Supplier B would see themselves as ranked #2 and would have to bid below 95 before taking over rank #1.
Check out the Event Management guide available in the Help area for more information and try running some practice events to get a better idea how they work.