Last week a frustrated supplier prompted me to write Hollow RFPs describing his view of insincere Requests for Proposal (RFPs).
The supplier felt customers put out RFPs for Sarbanes-Oxley reasons, and only went through the motions of testing the market.
For him these RFPs weren’t what they seemed, they were hollow.
The idea of hollow RFPs got me thinking about the customer’s perspective.
- What are customers trying to accomplish with RFPs?
- What are the costs of hollow RFPs?
- Are there other ways of accomplishing what customers want?
This article is an open letter to customers -to those who buy contract services. In it we’ll try to answer the questions above.
If you’re a supplier, you may consider sending this letter, or your version of it, to prospects and customers. It may start a conversation leading to better communication, relationships and business.
I’m writing this letter to you on behalf of your valued suppliers (janitorial, security, engineering, etc.). It’s about a wasteful practice that costs you, and your suppliers, time, productivity and money.
Here’s the problem: it seems Requests for Proposals (RFPs) are used for a variety of reasons, including:
- Fulfilling a Sarbanes-Oxley (SOX) related requirement
- Checking market pricing
- Qualifying new suppliers
- Learning new or alternative solutions
However, to suppliers , RFPs look as if you are seeking a new supplier. They respond as if you’re considering making a change.
In reality you may not want a new supplier, but use an RFP for one or more of the reasons above.
These hollow RFPs cost you time and productivity. The hidden costs of an RFP process can be huge. Maybe you already knew that.
Consider your time spent on an RFP, then add in your assistants, department managers, supervisors, procurement, phone operators, and everyone else involved. Multiply that by all the suppliers bidding, and each RFP process can be seen for the enormous investment it is.
Everyone’s time, once spent, is irretrievable. Time on an RFP might’ve been spent more productively by your company. You could’ve focused on your key projects at hand, or work towards your strategic goals. Just imagine what you could’ve accomplished using that time.
The same is true for suppliers. They could’ve spent their RFP time delivering their services better, faster, cheaper. Instead, it’s spent answering 30 pages of questions that are seldom read. Then creating dog and pony shows that have you nodding off in five minutes.
Even if this is only partially true for you, I’d like to take the next step and make some recommendations.
Our first is to avoid using an RFP for every informational need. Instead, use a different process for different needs.
Here are a few to consider in place of an RFP. They may be new to you, and may be out in left field. But let’s face it – the status quo is broken. Maybe it’s time for something new.
Fulfilling a SOX related requirement
This means different things for different companies. However, all have some need to show company funds are spent in the company’s best interests. It’s typically done by validating contract pricing to current market rates and providers.
RECOMMENDATION:Survey pricing from a group of pre-qualified suppliers using a cost-plus tool. It’ll create a level playing field for all suppliers’ pricing.
1) Develop a pricing survey tool for data collection.
Click here to see an example of a pricing survey too.
List your incumbent’s current positions and hours (not wages or markup). Your pre-qualified suppliers will provide the following:
- Hourly & salaried wages by position
- Vacation & holiday expenses
- Payroll taxes & business insurance (aka as fringe, or burden)
- Overhead, profit & taxes
Payroll taxes & business insurance includes: FICA, FUI, SUI, General Liability (aka PL/PD for Property Liability/Property Damage), Workman’s Comp, and if applicable any state disability insurance (SDI).
Consider excluding healthcare insurance, equipment, supplies, uniforms and other miscellaneous billable items in the pricing survey.
These can require detailed info and lots of time to price, yours and the suppliers. When you’re ready to make a change, use a full RFP and specify exactly what you want. You can get suppliers recommendations and pricing then.
Don’t include questions about the suppliers’ companies, they’re already pre-qualified. Also, don’t enter scope, specifications, or specific how-to questions, this survey is about pricing only.
Again, when you’re ready to make a change, your full RFP will get suppliers recommendations and pricing on specific items.
2) Enlist suppliers’ participation.
Identify a group of suppliers you would consider hiring. You may have to pre-qualify them the first time, see Qualifying New Suppliers below.
Contact your pre-qualified suppliers 60-90 days before your current contract ends. Tell them you’re fulfilling a SOX related requirement by surveying pricing – and not considering changing suppliers.
Let them know their participation in this pricing survey keeps them on your pre-qualified list. If suppliers want to bid when you ARE going to make a change, they’ll want to participate now.
Do tell your suppliers their pricing must be legitimate -that, if contracted, they could deliver at that price. Tell them verbally and in writing they may have to live up to their service/price offering. You don’t want low ball pricing because a supplier doesn’t think they’re accountable.
Using this process shows how critical it is to pre-qualify your suppliers. Finding people you can work with and trust becomes very valuable.
3) Perform the survey.
Provide suppliers your survey tool and timeline for completion. Thank your suppliers for participating in your survey. Compile data, review and present results inside your firm as needed.
Checking market pricing
When you’re not required to check market pricing for SOX related reasons, you still might want to. When a contract has been with one supplier for many years, it may need checking on.
RECOMMENDATION: Follow the same recommendation for SOX needs. Survey pricing from a group of pre-qualified suppliers using a cost-plus tool.
Qualifying new suppliers
This important step is best done when not under the time pressure and scrutiny of contract renewals.
Pre-qualifying suppliers doesn’t have to be done all at once. You can spread the screening process out over a quarter.
And it doesn’t have to be done every year, maybe every three years, or until you need to add or replace a supplier.
RECOMMENDATION: Work through a Request for Information (RFI) process as if it were an RFP – except there isn’t any pricing. You’re selecting a group of suppliers for their ability to deliver value that meets your needs.
Here’s a simplified process:
1) Send an RFI package to 8-12 suppliers.
Select only those you know, like, trust, or are curious about. Meet them individually and tell them your pre-qualifying strategy, your screening process, and the type of relationship you hope to begin.
2) Limit the number of RFI questions to something reasonable.
What’s reasonable? You decide. Remember, you’ll only want trusted suppliers in your pre-qualified group. This means really understanding their capabilities, which starts with reading their RFI responses.
3) Let suppliers know they can tour your site(s).
Coordinate a process that’s acceptable and convenient to you (you may have all suppliers do this at the same time).The more suppliers know about your business and facilities, the better they can serve.
4) After reviewing RFI responses, select your top 3-5 suppliers.
Invite them to make a presentation. Provide a list of questions in advance you’d like them to address. Give different questions to each supplier, depending on what’ve you learned from their RFI responses.
The goal is to understand the differences, what you’ll get from one supplier instead of another.
5) A week or two after their presentation, give each a debriefing.
Provide feedback on their company’s capabilities and their presentation as it relates to your needs.
Tell them what worked, what didn’t, and what could be better next time. In that order. Your honesty, openness and compassion will tell them you’re the kind of customer they want to work with. Even if they’re not under contract today.
6) Notify those few (3-5) you’ve selected for the pre-qualified list.
Thank them and let them know when and how they can meet with you periodically. Set aside informal time when you can keep them apprised of your situation, and allow them to share with you their news.
Learning new or alternative solutions
From time to time you may want to learn what’s new in the market, such as new processes, technologies, or products.
Although, suppliers are subject matter experts for their services, resist the urge to use them for free consulting in an RFP process.
If you respect your incumbent supplier, ask them to hold a business improvement fair. Once a year they can host a four-hour meeting where they bring in outside consultants, technology providers, equipment manufacturers, and other subject matter experts.
This can be their showcase for presenting their strategic contributions to improving your service, quality and cost-effectiveness.
If you’re not impressed with your incumbent supplier, hire outside consultants. Heaven knows there are enough of us out here. Select an area, such as KPIs, technology, green, and drive the exploration yourself.
I take full responsibility for any irregularities above. Some of these ideas may sound unusual, and they are.
However, what’s not unusual is the need for more productive use of your time, and suppliers (incumbents and bidders).
RFPs are not the answer for all reasons. Please consider alternatives that save time, respect relationships, and get what you need done.