In this two part article, Alan Day from State of Flux looks at why the RFP no longer should be the tool used for selecting suppliers. Part one focuses on the value of the RFP and how it positions procurement within the business.
It’s been over 20 years since I was first involved in strategic sourcing and in particular, running a formal RFP. That scary thought got me wondering why we, as a procurement industry still rely on such an outdated technique to choose our suppliers and supplier partners.
The most common complaint I hear from procurement departments is that they don’t get involved early enough in the process, leaving little ability to influence the demand or specification of the product or service.
Whilst I completely agree procurement can add value by offering a commercial challenge to the business requirements and I see the strategic sourcing process as key to doing that. I can’t help thinking that we are focused on the wrong things within the strategic sourcing process. Surely the focus should be on picking the right supplier to partner with us; the right supplier who is going to work together with us, adapt to changes in demand and specifications and the right supplier who is focused on adding value to our business. Rather than putting the focus or emphasis on writing and running formal RFPs.
The irony is that procurement is a department that exists to make organisations operate more efficiently and effectively, and yet how many people have looked at the costs and delay added by running formal RFP? The amount of time, effort and resource that is spent creating, running, answering questions and scoring formal RFPs can be significant. This impacts not only our organisation but all those suppliers responding, and we all know that they will look to recoup these costs somehow.
It is no surprise that suppliers do look at the cost of responding to the bid and how much effort they want to put in versus the likelihood of winning. This may lead to selecting the supplier that was willing to invest more in the RFP response rather than the one that is the best partner or even the best to do that point specific task.
It is surprising that suppliers don’t ’no-bid’ more of the RFPs they receive. The RFPs where procurement hasn’t had any contact with the supplier prior to sending out the RFP, the RFPs that don’t consider the impact on the suppliers timelines or resource/costs required to respond and the RFPs where they are clearly there just to ’make up the numbers’ and prove procurement has been through a process.
Suppliers know that no-bidding a RFP that you have spent months creating will be seen negatively (it’s been likened to invoke the same reaction from procurement as telling them their baby is ugly) and could affect the overall relationship and their future opportunities for business.
No one is arguing the need for competition and competitive negotiations while utilising the strategic sourcing process, but procurement should be looking at what the business is trying to achieve and how the RFP fits into this (or not). That is; is the formal RFP the right tool for choosing the right relationship to work with, ensuring the best value for the company, and having an auditable and transparent process to show that a sensible decision was made?
I believe as a procurement industry we have ended up making the formal RFP the central and most visible output of procurement.
It’s a tangible activity, and both the business and suppliers can see our input in this process, which makes it easy to ’sell’ what we do. Rather than the more intangible ‘we provide a commercial challenge to demand and specification’ or ‘help enable the buy-sell relationships between our business and the suppliers’ or other such mission statements which are much more difficult to understand and get buy-in for.
Being positioned as the department that runs RFPs gives procurement a problem when trying to sell our strategic value. The business doesn’t always see the value we add on the commercial side of a supplier deal, but they recognise that if you want to run a RFP you go to procurement. Hey, we’ve even put rules in our corporate governance to state that over certain thresholds the business must come to us to run a formal RFP. In the eyes of the business we’ve commoditised ourselves...we’re now an RFP factory.
I can hear some of you disagreeing with this, and yes there are cases where procurement is adding significant value to the business by changing the way the business operates or challenging demand and specification. But let’s face it, despite best efforts, most of the time procurement is still being involved in only running the RFP and negotiations, but too late to significantly affect the outcome.
Just as we want the business to see us adding value, we also want suppliers to see us as a customer of choice. As such these suppliers will be willing to bring new innovations, give us access to scarce resources when times are tough, access to preferential pricing and ensuring their ’A’ team are focused on adding value to our business.
But more about this in part two.
Alan Day is chairman and founder of State of Flux, a global procurement consulting, training and technology company headquartered in London.