Viewing entries tagged
procurement RFP

4 Common Sense Rules for Running RFPs

eRFX technology has transformed the way we run RFPs, enabling us to easily collate and evaluate huge amounts of information from bidding suppliers. Great, right? Well, like all powerful tools, eRFX platforms can also be used in a bad way. Having run hundreds of RFPs and now being in a position where I am receiving them, I often despair at the quality of the RFPs that come through, particularly via eRFX platforms. I would implore anyone running one to consider the following principles:

1. Only ask for the information you really need.

We recently received an RFP with over 200 detailed questions plus requests for 25 pieces of documentation, all for a non-critical, standard SaaS solution. Needless to say, my initial reaction was “Is it worth it?” and then, being unsure of the answer, “How do we avoid spending huge amounts of time on this?” Ask the questions that are genuine “go/no go” criteria, and ask the questions that will help differentiate the wheat from the chaff, but keep it brief. You will end up with more responses and responses of a higher quality if you do so.

2. Don’t make it completely impersonal.

It’s possible to run the entire process with no verbal or physical contact, and this may seem efficient, but how much are you missing by doing this? Unless you’re buying a genuine commodity in which case you’re more likely to be running an RFQ, make a point to talk to all the bidders prior to releasing the RFP. Explain the process, make sure they understand where you’re coming from, get a feel for whether they’re the kind of people you would like to work with or not. Verbal communication builds trust so much more quickly than written and it’s important that the supplier trusts you as well as the other way round.

3. If you have a scoring system, have one that makes sense.

There’s been a lot written about this, but many organisations create elaborate weighted scoring systems without understanding how they work. Any system that splits price and non-price criteria will mean that at some point a poor solution will score better than a good one if it’s significantly cheaper. Make sure you understand and agree with where that cross-over lies. In addition, ensure the suppliers understand something of which aspects of their response will be regarded as important, so they’re not shooting in the dark.

4. Think about the specific product or service you are buying.

There’s no one-size fits all for running RFPs so use common sense rather than slavishly following a fixed process. In some cases, you may want to meet with the bidding suppliers first to understand more about their offering prior to inviting them to bid, in other cases this can wait until a later stage. In certain instances 200 questions may be appropriate, in others 10 may suffice. Sometimes an eAuction will be the best method of negotiation, but sometimes not. Think about what’s important and create the most efficient process (for both you and the suppliers).

eRFX technology is great for finding the best fitting solutions at the optimum cost in the most efficient way, but it only works well if we don’t switch off our brains while we use it!

Why benchmarking is the lazy answer

Price benchmarking happens all the time, but is that because it’s good practice or because it’s a lazy, easy, placebo?

Some price benchmarking is made against “industry data”, mainly generic reports that provide some guide on pricing in a particular field. Other benchmarking may be made against a specific set of data, for example a consultancy using anonymous data from another engagement. The issue with these is that the data is usually either too generic, or too specific to another company to be meaningful.

At other times price benchmarking is achieved by obtaining quotes from alternative suppliers. This is particularly dangerous. Going to the supply base on a benchmarking exercise immediately suggests there is no real intent to move away from the current supplier. Many suppliers will figure this out and therefore quotes will be all over the place, from the low-ballers trying to stir things up, to the high quotes from suppliers who have no incentive to really try, and anything in between, rendering the data meaningless.

In addition there are the issues created by treating the supply market badly. Buyers often embrace the notion of maintaining good relationships with suppliers, but regularly overlook the benefits of good relationships with the supply market in general – their potential future suppliers. Frequently asking for quotes just to go back and negotiate with an incumbent is certainly not a good way to build relationships with either the market or the incumbent.

So what’s the alternative? A robust sourcing and ongoing category management process should give confidence that the market price is being met and eliminate the need for benchmarking, with the ongoing management being particularly key. It’s not the easy way, but the benefits (which will be far broader than just good pricing) will be worth it.