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In his previous post, State of Flux’s Alan Day questioned the value of the RFP and how it positions procurement with the business. In part two he looks at it from a supplier perspective and asks whether it helps make you a customer-of-choice.
Over the last five years of conducting our global SRM studies we have found there are 3 key attributes on why a supplier views you and your business as a customer-of-choice:
1) Money - they are going to either earn good revenue or margin on your account.
Most suppliers are very focused on winning your business and the new account, but once this becomes ’business as usual’ the attitude changes. The best way to look at this is to think of your salary, it’s what you deserve to get paid; you do a good job you deserve to be paid. It’s the same for the supplier, they do a good job and they deserve to be paid. Money is not a motivator, but get the money wrong, and it’s a big de-motivator.
2) Brand - they would like to align to your brand or have your brand on their corporate CV.
Brand is similar; suppliers are focused on getting your brand on their ’corporate CV’ but once they have the work/contract then they have it. It no longer becomes the motivator that it once was.
3) Behaviours - you are good/easy to work with, you listen, and there is mutual respect.
You have to ask yourself, is running a formal RFP making us easy to work with? Is running a formal RFP a way of developing mutual respect? Is running a formal RFP the best way of demonstrating customer-of-choice behaviours? In these days of speed and mobility, why do we still spend months creating monolithic documents that take a large amount of resource from us and the suppliers to create and respond to?
Jamie Napper, head of sourcing & SRM at Carphone Warehouse Groups’ Connected World Services is forthright in his views that procurement is not just about selecting the right price and the right product, these things are a given. Moreover it is about looking past the ’deal’ and selecting, then developing the right supplier relationship. Jamie maintains that his team "will add more long term value to the business if they focus on how the relationship will work, the governance structure, the metrics and the respective parties roles and responsibilities than running a drawn out and formulaic RFP process."
In fact, often the formal RFP process destroys value and supplier relationships more than it adds value.
Access to innovation, one of the key customer-of-choice benefits, often loses any competitive advantage because rather than recognise it for what it is, ’gold dust’, we decide to ’level the playing field’ and issue a formal RFP using these ideas, to the supplier and their competitors. Often restricting the supplier on how they respond to questions giving them little or no opportunity to show how they can add value or differentiate.
In my view, suppliers that are offering innovation and adding value through different ways of doing things should be nurtured and encouraged. All procurement succeeds in doing by commandeering these types of supplier innovations, is running the risk of ruining the relationship and guaranteeing that the supplier will never proactively bring an innovation to the organisation again.
I was lucky enough to spend time with the very forward thinking Bobby Dhanoa, global head of IT procurement at BP. Bobby was rightly questioning the value of the RFP in IT, especially when they were looking at the type of new suppliers they were trying to attract. She believes that these, young, often small, dynamic and nimble organisations don’t want to and won’t go through the old style RFP process, preferring to deal on relationships and trust. We need to find a way of engaging with these suppliers, ensuring we do our due diligence and protecting our company without making it onerous and maintaining or even building the relationship.
I think the Government may have got it right; the competitive dialogue process allows a formal process but retains flexibility and an informal ’personal touch’, giving you the opportunity to build rapport and trust with the respective suppliers. Yes, we still need to capture our decision making process for audit purposes but why can’t we just video these sessions?
So, with this in mind, here are some challenging questions that we might ask before making the decision to run an RFP.
Procurement must be a department that is continually focused on adding value to the organisation and challenging ways of working. We want to ensure that we help our internal business stakeholders achieve their goals and targets whilst, at the same time, taking the opportunity to challenge total cost, facilitate customer of choice benefits like access to innovation and manage risk.
Whilst I’m a big supporter of the strategic sourcing process, I just don’t think the formal RFP is the vehicle to do this anymore. The procurement profession needs to look at ourselves and start employing more modern collaborative techniques like the competitive dialogue process to achieve our goals.
Alan Day is Chairman and Founder of State of Flux, a global procurement consulting, training and technology company headquartered in London.