Should You Really Use An Rfp?
RFP or Request For Proposals are often seen as the default way to start an outsourcing
project and getting an idea of which vendors are likely to be useful to you. The downside is that RFPs tend to make sourcing advisors a nice profit while delaying the project and defocusing the link between the original intention and the solution which was developed. An RFP should definitely be considered and they can be the right answer in many cases, but if blindly used without thought they could actually be harming your business.
Should you use an RFP?
There is a School of Thought which teaches that outsourcing deals should always be put out to tender, in order to leverage a company's negotiating ability and purchasing power with suppliers and thereby obtain the most competitive bid. This School of Thought currently has a plethora of followers, and is very much in vogue in today's world. As with most popular things, RFPs are in place because people have used them before and they have been successful. If the RFP process did not work over time, they would not exist - simple Darwinism. However, just because they have 'worked' and produced a 'successful' outcome, does not necessarily mean it is an optimal outcome - in a commercial, strategic, or operational sense. An analogy to make this point might be as follows. Motorbikes are popular. They are used in vast quantities and many people swear by them. However, whilst it would be possible to get from Lands' End to John O'Groats on a motorbike successfully, and the motorbike will (hopefully!) work, it is not necessarily the optimal way of doing it. There are other modes of transport which do it more quickly, cheaply, easily and efficiently. Motorbikes are certainly an option, but not necessarily the optimal choice in this instance. The same applies with RFPs - they certainly work and are successful in navigating a client along an outsourcing journey, but they are not necessarily the optimal choice in each instance. The assertion of this paper is that perhaps client executives are too readily donning their motorbike helmets when beginning the outsourcing journey, before thoroughly thinking through the steps involved. And here's why.
RFP - Has upsides
The RFP process is often used because of the things it can offer. A quick online search will show you some of them:
Letting suppliers see that they should make a serious attempt at getting your real business
It makes sure you've properly done the requirements analysis and lends itself to clear identification of necessary tools and equipments that will need to be purchased
It brings out the competitive element in the various players involved as they know they're not the only ones after the business
It ensures that a wide selection of vendors can be made aware and take action
The detail helps make sure that responses are based on real information rather than generalized ideas
With the use of a systematized approach there is no question of impartiality in the process
In full knowledge that it is a competitive bidding process, the suppliers are more likely to provide a price and terms that actually stand a good chance of winning and progressing them to the next phase of submissions. The different submissions will also give the client something to compare each one with and to ensure that they have communicated their requirements in a clear manner that allow suppliers to provide them with a solution that will properly address the issues they are targeting.
The benefits can certainly be seen to be useful and some people may think this means an RFP process makes sense, but when you look at the disadvantages you'll see why that's not the case.
Best Price + Excellent Commercial Terms? Great Deal
What appears to be a good deal and what you end up getting are often very different things and many companies choose a supplier for the wrong reasons or discount others out of naivety of the process. The big players know exactly how to make the deal sound right and then assign resources based on the opportunity. This means that you may have got a lower cost but you'll get a less experienced team and less focus from the people you thought were on your project. This means that you need an experienced advisor with you who understands the dynamics and even knows which companies are likely to end up delivering something different to the sweet deal you thought you'd make initially.
The time spent responding to RFPs is all soaked up by the client and unscrupulous sourcing advisors can drag out this process to increase their billable time and get the client responding to many RFPs when in fact they already have a good idea of who the right supplier is and could easily make the process much quicker and easier if they weren't focused on squeezing as much revenue as they can from the situation. The RFP process ends up just facilitating what was a foregone conclusion. If the client has a limited amount of experience or knowledge of the process and their supplier environment then they may be at the mercy of their sourcing advisor during the process and not even realise what's going on.
Many times the person drafting the RFP has no real experience of delivering such a project and has taken their guidance from books on the subject and leave themselves open to a lot of risk because they don't really know how the outsourcing engagement works, often the client and their advisor have never been involved in this type of engagement and it's like the blind leading the blind with both thinking they're following best practice and things are going great.
The biggest problem with the RFP process is that existing relationships are ignored in favour of trying to get a better price or better terms. Developing an ongoing relationship with your key suppliers is the only way to ensure you have a solid growth strategy. Treating a long-standing supplier like a newcomer does nothing to improve that relationship and if anything has the opposite effect to the one you really want when you get down to trying to get on with business and relying on your suppliers to help meet your deadlines and targets.
So RFP processes get these relationships off in an adversarial and confrontational way which is nothing like you really want to foster when your business is tied to that of the people you're engaging.
Conclusion - Trusted Advisor Is Key
Buying, selling, advising, and legal are all really important considerations and your advisor needs experience and a deep understanding of all of these aspects and be able to take you on your complete sourcing journey.
RFPs do work in certain situations, especially for smaller deals, but be mindful of all the negative points they bring. Ensure your advisor is not using the RFP process as a way for them to make a few months of healthy consulting fees. The 'right' advisor will not need to do this. Indeed, they will not want to.
If your decision to outsource was a forced one it may not even make strong commercial sense, so make sure you involve your advisor as early on in the process as possible to avoid any early costly mistakes based on poor early choices.
by: Andy Henry.
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