Fundamental Truth? RFPs Will Show Us the Way

Posted: 12/01/2018 - 03:16
If you’re just joining us for this series, I’ve been challenging some of procurement’s most fundamental “truths” over the past few months. These are the perspectives that we usually adhere to and seldom question – at least until now. 
 
I’ve already addressed the concept that larger spend categories are more important than small ones and that supplier consolidation is consistently a wise go-to strategy for delivering savings. In this post, I will take on what may be the last refuge of traditional procurement thinking: the notion that Requests for Proposal (RFPs) are the most effective way to compare and select suppliers. 
 
My perspective on this “truth” is shaped by multiple perspectives since I have been on both sides of the process numerous times: I’ve written RFPs as a buyer and responded to RFPs as a service provider.  
 
First, Some Terminology 
 
“Request for Quotation” (RFQ) and “Request for Proposal” are often used interchangeably, but it is important to note that they are not the same. RFQs are typically used when procurement has a specification to buy against. RFPs are used when the business has a problem to solve and is looking for solutions.  
 
RFQs are issued when the company knows what it wants to buy, leaving little to no room for supplier creativity. The buyer usually has pre-qualified the suppliers and price will be the main factor influencing the award decision.  
  
With RFPs, the company has an idea of what it wants to buy, with little to no specifications, and reaches out to the market to ask for proposals on how to satisfy its objectives. 
  
The Stress of Over Use 
 
RFPs are often overused by the procurement department, who send them to many participants at the beginning of a sourcing project. As a buyer, RFPs are my primary tool for understanding the marketplace. This was particularly the case early in my career when I was more of a generalist than a specialist. Issuing RFPs saved me a lot of time because I didn’t have to research the market too much and I could reach out to suppliers to answer nearly all of my questions.  
 
But here’s the rub: I would send RFPs to companies that I knew had little chance of winning the business. It also wasn’t unusual for stakeholders to have a shortlist of suppliers to whom they preferred to award business, and so the RFP became a way to validate what those chosen, shortlisted suppliers were saying against the market.  
 
I felt that whoever received my RFP would respond in the best way possible because I had leverage. I worked for a big company and had a lot of money to spend. Over time I realized that I was not alone in taking this view and I would suspect that this is still the primary use for RFPs today. 
  
On the Outside Looking In 
 
As a service provider, responding to an RFP can be very time intensive. It often requires input from high-value resources who have to be pulled away from billable activities.   
 
This is how I looked at RFPs I received when deciding whether to respond: 
 
  • Does the potential client fit my target demographic?
  • How realistic are my chances of success – am I only there to provide free consulting?
  • Do I have a chance to influence the scope or is it being dictated to me?
  • If I were to win the business, how committed is the potential client to driving the change that I would need to be successful?
  • Am I being given all the information available to help me respond in the best way possible? 
  
As a buyer, I naïvely felt that sending out RFPs guaranteed strong responses from all invited participants. As a seller, if I felt that the buyer was acting in this way, I responded in the most cost- and time-effective manner by developing a proposal that may not have been exactly what the buyer wanted. It might mean that I missed out on business, but that wasn’t likely. The most successful companies pick and choose their clients because they have more work than they can handle. As a buyer, I often received half-hearted responses rather than innovative solutions. I shouldn’t have been surprised. 
 
So, What is the Solution? 
 
Procurement must understand the marketplace for the product/service as much as possible and seek out specific suppliers to target rather than take a spray-and-pray approach.  
 
If you are required to issue RFPs to a minimum number of suppliers, then be as transparent as possible. I recommend limiting the number of questions to minimize the time investment required by respondents. Issuing a project brief in advance will provide context and significantly reduce the upfront investment of time for an RFP response, particularly when many RFPs are issued without being explained to recipients in advance. 
 
For everyone’s sake, do market research and conduct informal interviews to create a supplier shortlist. Vetted suppliers will receive more focused attention from procurement and invest more time in responses because they know they have a better chance of being awarded the business.  
  
I’m not suggesting that this is the only solution. However, what I do advocate is that you stop and think about how you use RFPs. Are you using them to gather as much market intelligence as possible or to rank suppliers with equal opportunities of winning the business? Your answer to that question will have a direct impact on your ability to generate lasting value and supplier relationships. 
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About The Author

Phil Ideson's picture

Philip Ideson is the founder, editor and host of the Art of Procurement Network.  His prior experience includes work at Accenture, Ally Financial Inc., and Chiquita Brands International Corporation. 

The Art of Procurement podcast delivers multi-channel learning and development programs to help procurement leaders increase the capabilities of their internal teams.
Twitter: @aopshow