What Is An RFP And Why Is It Important To Digitalize It?

What is an RFP?

A Request for Proposal (RFP) represents a document or a sourcing stage where proposals are solicited from suppliers or solution providers.

The Buyer uses the RFP to state the requirements of the goods or service being procured, the terms and conditions of the engagement, the vendor evaluation criteria, and most importantly the bidding sheet. This bid sheet outlines the quantum of goods or services and suppliers need to quote the price for the same.

RFPs apply to all types of spend – indirect, direct and capex. Every sourcing process needs an RFP in some form or other; with varying complexity depending on the nature of the item being sourced.

3 key aspects of an RFP that underline its importance

1. RFPs precede the ‘negotiate & award’ stage and hence need to be managed from that perspective

An RFP is followed by a negotiation process after which the business is usually awarded to the most competitive supplier in terms of price, capability and service.

In an online eSourcing platform scenario, RFPs precede auctions and hence set the basis for the starting price for every supplier. If multiple suppliers have responded within a narrow price range, the chances of a successful auction are high. Note that If prices are high, it is not advisable to rush into an auction without understanding the reasons behind high pricing received from the suppliers.

In addition, negotiation happens with qualified suppliers only. Hence the RFP must solicit all kinds of information for buying teams to achieve that.

2. Supplier Management is critical once RFPs are floated

Supplier responses to an RFP are the initial indicators of the supplier interest and eventual success of the sourcing project. While the buyer may think the business is exciting for every supplier, it may not be the case. A large steel furniture company put out a bid for USD 30M worth of fabricated steel. While this seemed a phenomenal business for any new vendor, it required many of them to invest significantly to meet this demand. The terms & conditions didn’t address this aspect and hence the RFP received a lukewarm response.

Supplier participation is key. If an RFP is floated to 15 vendors and only 2 of them respond, it’s a cause for concern. Either the specs are wrong or over-designed or the suppliers have misunderstood certain aspects of the RFP. Reaching out to them proactively and addressing their concerns is vital.

3. Standardization of RFPs helps to lower cycle times

Studies show that companies spend 30% of their sourcing cycle time in drafting RFPs. Many times, sourcing teams tend to recreate RFP content rather than reusing content from previous RFPs.

In addition, standardization helps in reducing time-to-publish and also allows teams to proceed with greater clarity.

Standardization of pricing bid sheets (computation of activity costs or landed costs), terms and conditions, qualifying questions, etc. help a great deal in speeding up the process.

What are the benefits of digitalizing RFPs?

It is common for many sourcing teams to only adopt online auctions as part of an esourcing initiative. RFIs and RFPs continue to be manual though. At Krinati, we believe this is a sub-optimal approach and greater value could be realized if RFPs are digitized and executed online too.

Online RFPs help sourcing teams achieve the below.

1. Reduced time to create and publish RFPs

Templates help in creating and publishing RFPs in minutes.

Say there is a qualifying questionnaire used to purchase chairs for a new office. This questionnaire can be saved as a template and reused for the next sourcing event. Let’s assume that the team made some omissions in the previous sourcing cycle – they forgot to ask for after-sales support for the chairs and the time for resolution. Since questionnaire templates can be modified on-the-fly, the event content remains updated and available at the time of publishing the sourcing event.

2. Improved supplier management and collaboration

Supplier bids should be analyzed as soon as they are submitted online. How does one supplier fare vs the others? Have suppliers responded to all the line items? Are there any line items that haven’t received any response? It is critical to evaluate the RFP when it is still live because all the analysis done post the response due date does not serve the same purpose.

3. Greater Savings

Suppliers tend to trust a system more than the words spoken by a buyer. Competitive RFPs display the rank and/or leading bid to suppliers as soon as they submit their response. As a result, this sets in some competition and suppliers submit several bids while the RFP is live.

This works great when items are bought for the first time or when there is an auction procurement to follow. RFP responses tend to be in a narrow range which sets up an auction very well.

4. Compliance and audit-friendliness

We all agree that this is one of the most audited processes in any organization. Auditors need to know — Were 3 bids were sought? Which suppliers did not participate? Why did they decline? Who approved the award? Who qualified the supplier (evaluation scores)?

Online RFPs provide this much-needed compliance that keeps the internal audit team happy!

Original Source: RFP eSourcing Platform