Running a formalized purchasing process is a critical step towards improving outcomes and maximizing ROI. An RFP (Request For Proposal) is widely considered the cornerstone for a big-ticket purchase by companies, governments and other organizations. Countless organizations engage in the RFP process, which enables buyers to compare features, functionality, and price across potential vendors. Key stakeholders can participate in question selection and response scoring, ensuring that their needs and interests are considered. A good RFP creates a clear focus on specific criteria that are important to the buyer.
The most common way RFPs are managed is via ever-growing email threads with Excel and Word documents attached, making it challenging to wrangle both people and data. Compounding the challenges of running a paper-heavy process, the integrity of the sourcing process is often called into question. In some cases, one vendor will act as a source of questions for the RFP — questions that the buyer then distributes to competing vendors. While such an action may give a buyer a “running start” in building an RFP questionnaire, using a vendor’s RFP template likely means introducing bias into the evaluation. Some vendors are concerned about competing on an unlevel playing field and decline to participate in RFPs, reducing the chances of an optimal outcome for buyers.
Poor process and suboptimal outcomes are all too common characteristics of bad sourcing events. There is light at the end of the tunnel, however. Used properly, an RFP can offer both tactical and strategic value. Below, we’ll walk you through some of the best practices for RFPs, address critical sourcing questions, and occasionally introduce some levity into what can be dry subject matter. One note on terminology. We use the words “supplier” and “vendor” pretty interchangeably to refer to a third-party provider of a product or service. On the other side of the equation, we tend to use the words “buyer” and “purchaser” to refer to the party that is looking to source the product or service.
There’s a lot to uncover here so we encourage you to use the table of contents to navigate through The Essential Guide to Understanding the RFP Process.
Does your company invest millions of dollars per year or more in products and services that fail to meet ROI targets? You are certainly not alone. Even organizations that commit to building procurement departments and centers of excellence in support of their sourcing efforts often miss the mark on purchases, resulting in unexpected cost overruns and poor supplier alignment.
Leading organizations have come to understand that investing in an RFP process that adheres to best practices can yield significant benefits that not only improve ROI, but that can improve outcomes across a variety of measures. Developing and dialing in an effective process improves the overall quality of purchasing decisions by allowing buyers to engage in apples-to-apples comparisons across potential suppliers.
Do you already have an effective RFP process in place? Check out the steps below to ensure you are following best practices.
Draft and Issue
Score and Shortlist
Select the Winner and Contract
Investing time in an RFP process will result in purchases of products and services that align with your business goals and requirements.
RFI (Request For Information) is often issued before beginning a purchasing process. An RFI is similar in some ways to an RFP, but is usually less rigorous and contains fewer questions. Its purpose is to allow an organization to assess whether or not to move forward with an initiative and/or whether a particular vendor should be included in the list of vendors that will be invited to the RFP. As such, an RFI will precede an RFP, RFT, or RFQ.
RFP (Request For Proposal) is the first step in a procurement process. An organization that wants to issue an RFP assesses its needs and develops a list of criteria, which are then turned into questions. The questions are then compiled into a questionnaire which is sent to a group of vendors that provide the products/services that align with the buyer’s needs. The vendors, which are sometimes called suppliers, respond to the questionnaire and return it to the buyer whereupon the vendors’ answers are scored. Top-scoring vendors are then usually invited to negotiations or to submit specific bids in an RFQ.
RFQ (Request For Quotation) is a solicitation to vendors that
The acronym RFX is often used as shorthand to indicate a Request For “Something,” be it a proposal, information, a quotation, or something else. It’s often easier to reference an RFX than “an RFP, RFI, or RFQ.”
When and why should I use an RFP?
A request for proposal (RFP) is widely considered to be the best-practice process for big-ticket purchasing by companies, governments, and other organizations. Countless organizations engage in the RFP process, which enables buyers to compare features, functionality, and price across potential vendors. It is a crucial component of the sourcing process. RFPs are most regularly used when sourcing goods or services that are somewhat complex. For example, an RFQ might suffice when trying to acquire commodity part from a vendor. In that situation, an organization might be looking at multiple sources for the exact same item where the key factor in determining which supplier to use is
How do I format my RFP?
One of the challenges with RFPs is the lack of standardization. Putting aside layout, there is no standard for
Insofar as the layout of an RFP goes, the prevailing approach is to build tables. This format is effectively native to Excel and other spreadsheet applications. It is also easy to set up in Word and other similar word processors. An RFP will typically have a list of questions that are split by section and subsection. Here’s an example:
When an RFP is formatted as above, there will usually be an additional column for the supplier to provide a response. In addition to the RFP questionnaire, buyers will often include other information and frequently send several documents. They might, for example, send information about their organization. It is also quite common for buyers to send details explaining the rationale that underlies their intent to purchase a good or service. This type of information is very helpful to buyers and sellers alike as it creates
How long should my RFP be?
In RFPs, as in life, more isn’t always better. We have encountered RFPs that run in excess of one thousand questions. For certain purchases, this may be wholly appropriate. In fact, one thousand questions might not be sufficient in some cases! What’s important is that the buyer’s criteria are well understood and articulated to the suppliers. The best way to do this is to make sure that all of the stakeholders are engaged and working with the sourcing team.
To that end, there is usually one or more gatherings of stakeholders — in person or online — wherein the specific needs of the stakeholders are documented and the criteria for evaluation are established. This pre-RFP process is critically important and will ultimately determine the scope and length of the RFP questionnaire. In fact, issuing and ultimately scoring the RFP might be better viewed as the culmination of an effort to understand and document the requirements for a product or service. The RFP should be...well, it should be as long as it needs to be.
Granted, the above is probably a terribly unsatisfying answer! In our experience, the number of questions in the majority of RFPs ranges from around 50 to 200.
I just use preferred vendors, why would I use an RFP to find others?
It is normal — and desirable — for buyers and vendors to develop a relationship over time. This relationship, however, should not be confused with a marriage. Looking at alternative options is not cheating, but rather, a best practice. The problem with buyers simply re-upping with a preferred vendor is that they lose track of the market. And the consequences can be more significant than paying too much. As suppliers’ offerings evolve, the “fit” or alignment with the buyer’s business changes. Where a provider was once ideal, it may
A good practice to adopt involves sending periodic RFIs to both your preferred vendors and their competitors. The RFI is typically going to be more concise — and therefore less time consuming — than an RFP. However, by asking pointed questions about the offering and pricing, buyers can assess whether it makes sense to revisit the RFP process and consider a new supplier.
How many vendors should we invite to participate?
Unfortunately, there is no easy answer to this question. Indeed, in certain categories, there are only a small number of suppliers who offer a particular good or service. So even if you wanted to invite 15 suppliers to bid, you might have to settle for three if that represents the entire ecosystem of providers. Other categories can be quite crowded, however, with tens or hundreds of vendors meriting consideration. Invite too few and you don’t have a representative sample. Invite too many and you’ll find that you’re investing time diving deep into offerings that don’t align with your organization’s needs.
An approach that many strategic sourcing experts take is to run a two-step process. The first step involves issuing an RFI to a broad swath of vendors in a particular category. It is critically important that the RFI questionnaire
By creating a two-step process (an RFI, followed by an RFP), buyers can have the best of both worlds. In the RFI, they are able to cast a very wide net and include many suppliers without having to invest an inordinate amount of time doing the evaluation. By advancing only those vendors who scored well on the most important criteria in the RFI, buyers can limit the number of invited suppliers in the RFP while still maximizing their chances of finding the best match.
How do I evaluate the responses?
RFP response evaluation should be a collaborative process. When running a sourcing event, there should be a team of people involved from the purchaser’s side: people from the sourcing team/procurement department, stakeholders, and sometimes independent subject matter experts or consultants. As RFPs are often highly qualitative in nature, it’s helpful to turn the evaluation into actual scores so that the vendor selection can ultimately be support by quantitative measures. There are many valid ways to do this; it’s most important to agree on the scale. For the majority of organizations, allowing evaluators to select from the following scores typically works well: unacceptable, poor, satisfactory, good, excellent. It can be helpful to use linguistically descriptive words that can be turned into numbers. In the aforementioned case, it may well look like this:
What should I do if I don’t get any good responses back?
An important part of scoring is creating the right context. Too often, when RFPs are issued via email with attached documents, buyers score one vendor at a time. This makes it extremely difficult to do an “apples-to-apples” comparison. A better way to approach scoring is to line up questions and answers side by side. The context then shifts from the particular vendor to the question and its associated response. This allows the evaluator to score the answers relative to each other, which should improve the accuracy of the evaluation.
If your organization issued an RFP and didn’t get any good responses back, there could be a number of potential issues.
What should I do if I get too many good responses?
With all of the stress in your job, are you going to complain about such a high-class problem?! Seriously, though, too many good options can still present a problem. There is actually a name for this: the “paradox of choice.” When you’re presented with a multitude of high-performing suppliers, the first thing you should do is give yourself permission to relax a little. If you have
How much time will I save if I invest in RFP management software?
There is no question that running RFPs via email and document attachments can be arduous and
The good news is that RFP management software can fundamentally change the dynamics of running sourcing events. Stakeholders can be engaged in the RFP process without being subjected to onerous demands on their time. It’s difficult to quantify the time savings realized by using RFP management software. However, it is clear that the savings are significant. Layer in its other benefits and it’s clear that RFP management software can be a transformational investment for a sourcing team.
Think about how you currently manage your RFP process. Organizations spend countless hours working on RFPs and experience pain and frustration throughout the entire process. Below are the top 3 challenges for many organizations:
A Time-Consuming Process
Even the thought of sifting through emails chains and spreadsheets searching for responses can put a lot of pressure on any team under a tight deadline. It is important to think about the time it takes to:
Procurement departments may drive the purchasing process for many organizations. However, internal stakeholder engagement is critical when they might be primarily responsible for determining which suppliers get selected. Ultimately, engaging others in the evaluation process drives better ROI and purchasing outcomes for the organization. A study conducted by IDG showed that technology purchases tied to business typically involve 15.5 people across 5.8 different functions. Consider how much time is spent coordinating that many calendars.
The RFP process should be seen as an opportunity, not an obligation. To increase stakeholder engagement, organizations should:
Do you know how much your organization is spending on the procurement process? More and more companies are realizing how savings support their bottom lines. Manual RFP processes lead to copy-and-paste errors while trying to consolidate documents or due to rushing in order to meet deadlines. Organizations make
“Remember time is money”
To understand your company's current ROI, calculate the dollar value of cost savings.
There is no “one-size-fits-all” approach to managing the sourcing and procurement process. After evaluating the pros and cons of the methods listed below ask yourself… what is right for my organization?
Many organizations resort to using Excel because it is a familiar and extremely powerful tool. That, however, does not mean it’s an effective RFP tool for everyone. Excel-driven sourcing events are highly manual and you run the risk of human error and incorrect or incomplete data.
Smaller companies may choose to outsource the RFP process if they determine that their time will be more impactful spent elsewhere. In specific cases, it can certainly reduce workload and operational costs.
Even if your organization reaps the benefits of a successful sourcing event orchestrated by a consultant, it’s important to consider what will happen after your engagement. How do you manage the relationship with the new vendor? And what do you do for the next purchase?
Implementing Procurement Software
Not all procurement software is created equal. RFP management software streamlines the procurement process and improve purchasing decisions through consolidation of information, increased stakeholder engagement and time savings.
Which method is the best for your organization? It will all depend on the needs of your organization. For additional information, check out our eBook that will walk you through each method in detail.
Organizations that use RFP automation software have significantly cut costs and
Transitioning from the old-fashioned approach of spreadsheets and documents to an automated RFP process will help your organization see a better ROI. The graphic below lists 9 must-have features of an RFP management solution.
Interested in learning more? Click here for more information on these 9 must-have features of an RFP management solution.