Should You Really Use An RFP?
RFP or Request For Proposals are often seen as the default way to start an outsourcing project and getting an idea of which vendors are likely to be useful to you. The downside is that RFPs tend to make sourcing advisors a nice profit while delaying the project and defocusing the link between the original intention and the solution which was developed. An RFP should definitely be considered and they can be the right answer in many cases, but if blindly used without thought they could actually be harming your business.
The RFP Dilemma
Whether or not to RFP may seen like a stupid question since the RFP process has been around for a long time and is obviously working to some extent. Many companies see the RFP as a good way to establish some leverage in negotiations and maximize the purchasing power over suppliers and ultimately get the best deal when bidding ends. The idea that because RFP’s have worked in the past that they are still the best mechanism is based on acceptable previous outcomes when using them. It’s possible that much improved outcomes could arise from using a different process but the idea has never arisen. If your client needs help along their outsourcing journey that’s fine but an RFP may not be the way to do that to best effect.
RFP - Has upsides
The RFP process is often used because of the things it can offer. A quick online search will show you some of them:
Highlighting to suppliers that your procurement requirement is real and they should consider it fully
It makes sure you’ve properly done the requirements analysis and lends itself to clear identification of necessary tools and equipments that will need to be purchased
It let’s suppliers know that there are other players in the select and it’s therefore a competitive process
It enables a good spread of distribution and attention
It prompts suppliers to ensure their responses are based on facts and address the detail of the requirements
Using a standardized process ensure no concerns of impartiality
In full knowledge that it is a competitive bidding process, the suppliers are more likely to provide a price and terms that actually stand a good chance of winning and progressing them to the next phase of submissions. The different submissions will also give the client something to compare each one with and to ensure that they have communicated their requirements in a clear manner that allow suppliers to provide them with a solution that will properly address the issues they are targeting.
So there are definitely benefits and these can be very powerful but in reality are usually insignificant when compared to the disadvantages that the RFP process also has.
Minimum Cost + Great Terms ? Optimal Deal
Making the decision to move forward with a supplier based on cost is often a mistake and even when you think you’ve got a big supplier onboard for a cost lower than you expected, you can usually expect to received the B-Team when their people turn up. They always factor in the size of the opportunity and for every little they give up in the RFP process to keep you happy, there will be a counter-balancing factor that gets them something in return. Your sourcing advisor needs to be experienced and know which candidates are likely to wiggle out of what you thought was agreed in their bid to make sure they get maximum profit from you.
Quite often the client will be led down a path that is already clearly established and with the intention to use a particular supplier. This means that their trusted sourcing advisors could be happily charging them for time and effort responding to RFPs when there’s actually no need at all. This introduces time delays and opportunity costs as the client wastes time that could have been spent moving their project forward following poor advice to respond to RFPs which ultimately will not be considered. The whole process can be costly and time-consuming because the different parties involved are focused on how they maximize their slice of the action rather than getting the client an implemented sourcing strategy. The big players even account for this and won’t respond to and RFP unless it’s over a certain size and they are clear that they can make a good profit from spending that time on it.
Ignoring the importance of experience and real world knowledge of how the engagement process should be done can be a dangerous path to follow, but many times the people writing the RFP and even their advisors have never actually completed the process previously. They read about it and they try to force best practice into an environment which may not support it. They don’t understand the commercial risk that large engagements can bring with them and they don’t understand how to spread that risk fairly among the participants. The right advisor will be on top of everything and will have their eye on strategic and commercial levers such as value creation, transparency, strategy, governance and vision.
The final problem with the RFP process is that it often ignores or reduces the impact of the existing relationships that the client has with suppliers. Much like a dating show, just turning up to see which hopeful candidate can say the right thing today when you already have a great relationship with someone else can be more harmful than helpful in your overall business strategy. Supporting and nurturing supplier relationships creates better partnerships, treating everyone as equal and checking tick boxes to pick a winner can get you the wrong supplier.
So RFP processes get these relationships off in an adversarial and confrontational way which is nothing like you really want to foster when your business is tied to that of the people you’re engaging.
Conclusion - Trust And An Experienced Advisor Are Key
Your sourcing advisor will make or break the success of your outsourcing project. Choosing an advisor with experience and understanding of all aspects of outsourcing - buying, selling, advising, and legal considerations is crucial. They need to have delivered a sourcing strategy successfully in the past.
The wrong advisor will use the RFP process to ensure they pull a healthy profit from the relationship with you, so if you do opt for the RFP process make sure that you get the right advisor who will be looking to get you the best result in as short a time as possible.
Make sure that you involve your advisor early on in the process as the decision to outsource is often taken too early or necessarily and your advisor will be able to spot if it doesn’t make strong commercial sense.
Learn more about strategic sourcing. Stop by Elix-IRR’s site where you can find out all about Outsourcing Consultants and what they can do for you.
September 6, 2010 | Posted by Andy Henry
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