Many organizations start the purchasing process with a Request for Proposal (RFP) to identify the best vendors for their needs. But if they aren’t designed properly, RFPs can backfire, leading to low response rates, poor bidder fit or proposals that are time consuming to evaluate. To get the most from your RFP, implement these three best practices.
1. Know Your Needs
Many RFPs suffer because they are unclear or imprecise. Clearly articulate your objectives in the RFP so vendors understand your requirements. To do this, you must know what you want. So, before you begin writing the RFP, do your homework to identify your needs, clarify goals and develop specifications. This may require internal meetings and research, but the time investment will pay off in more on-target proposals.
Buyers sometimes feel tempted to be vague in RFPs in the hope it will draw varied and innovative solutions from bidders. The reality is that, even if you want to leave room for vendor creativity (and we will talk about this later), you must leave no doubt about what success looks like for your organization in this initiative.
What are the specific outcomes you seek, problems you want to solve or improvements you are targeting? How will you measure this success? Define the goals in terms of measurable impact on the problem, such as reducing process time by 5 percent or labor costs by 10 percent. Avoid relying on generic boilerplate language.
Limit your requests to essentials so bidders can put their energy into your priorities. A laundry list of “maybe” items can make your RFP too time consuming and deter bidders. Be detailed so vendors do not feel a need to interpret. Make sure the selection criteria are tied to the measurable outcomes you seek.
2. Encourage Vendor Innovation
Structure the RFP around solving the business problem, rather than solely on the technical specifications or pricing, and you will spur vendors to propose innovative solutions. Asking them how they would solve the business problem will elicit creativity. Consider it a request for solution, rather than a request for proposal.
A great way to bring out the “special sauce” that a supplier can offer is to ask for a value proposition statement at the beginning of a bidder’s proposal. Making this value proposition a requirement will allow the vendors to differentiate themselves by describing their approach and unique solution in detail.
The value proposition can help you identify a superior supplier even when you are buying commodity goods or services. This distinction will usually go beyond cost and include extras like experience with unique solutions, proprietary technology or products, specific expertise, geographic proximity, speed, service and warranties.
3. Run Negotiations Alongside the Selection Process
Negotiation is often necessary when:
• The purchase price is high or the vendor will provide ongoing products/services.
• There are a limited number of vendors.
• New processes or technologies are involved and pricing must be established.
• The vendor must make a large financial investment.
• Time is limited.
Often, the RFP process is run so that the selection is made prior to negotiating the final terms. Unfortunately, this can put the selected vendor is in a position of power when it comes to negotiations. Once the chosen vendor is notified of their selection, the vendor knows that they have negotiating leverage because there is no one else in the race.
To eliminate this situation, create a short list of perhaps two or three applicants at some point early in the selection process. This should be relatively easy to do if you have allowed the vendors to indicate how they will approach your business problem and to include a value proposition.
So, instead of the process looking like this:
Prepare RFP -> Invite Vendors -> Review Bids -> Award Contract -> Negotiate Terms -> Finalize and Sign Contract
It would look more like this:
Prepare RFP -> Invite Vendors -> Review Bids -> Short-list Suppliers -> Pre-Negotiation -> Award Contract -> Finalize and Sign Contract
Once short-listed, you can run a pre-negotiation of the contract and price with these short-listed applicants.
This pre-negotiation is operated in parallel with the selection process; it is not a side negotiation. Make it clear to short-listed vendors that final vendor selection has not been made at the time of pre-negotiation to ensure your leverage in the negotiation process is preserved. This way, once you make a final selection, you can fall back on the pre-negotiated terms. Just be sure to maintain consistency in the short-listing and pre-negotiation process for each vendor.
By following these RFP best practices, you can find the right vendor while minimizing the need for amendments to the RFP, vendor interviews, clarification rounds, and extensive negotiations. The result is a better vendor selection process that can be implemented more quickly and efficiently, benefitting everyone involved.
ProcureWare has helped organizations of all sizes in a variety of industries improve their procurement process with online bidding solutions. Contact us to learn how our software strengthens your RFP process.