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Why should organisations run RFPs, what will they deliver and how to maximise the opportunity?
How could you optimise the RFP process and drive efficiencies?
Why should organisations run RFPs, what will they deliver and how to maximise the opportunity within the RFP process.?
To answer this question and supply insight that businesses can use to decide if an Request for Proposal (RFP) is right for them, we have created and reviewed four key questions that cover this statement including savings, benefits, comparison to renegotiation and maximising impact.
1. Will Running a Tender/RFP Deliver Savings?
This question is the single most critical question that any Senior Stakeholder should ask. This question comes from a belief that elevated levels of team engagement and a large internal investment for change are needed for a successful Tender.
The simple answer is yes, in our experience, going out to Tender for large categories of spend, will nigh on almost deliver every time, with savings ranges of 3-15%.
The primary requirement for this outcome is ensuring Competitive Tension. By having multiple bidders in the running who are all competing to win your business. However, for full buy-in, you must show each bidder why they should want to work with your business.
How do we do that? We should
· Run a transparent process to give confidence of integrity,
· Run a briefing session that makes them feel included,
· Demonstrate belief in your core values and how they link to the process,
· Ensure Senior Stakeholders conduct the briefing to show a level of seriousness to the process.
This will ensure they do everything they can to win, and will see you as a strategic partner.
Outside of competitive tension, it is extremely common for most long-term relationships to have seen no renegotiation during the lifetime of the contract. Nor would any terms of service have changed other than extension addendums. Add to this the typical yearly price increases with minimal rationale causing long-term pricing that will be out against the market and you have the perfect mix to drive savings.
The other major benefit of an RFP is that the savings delivered are usually extensive enough to cover the OpEx cost of running the process. Oftentimes, savings will also cover the cost of making the change to a new supplier, whilst still having some savings for the business to bank.
Running an RFP may be slower than re-negotiation but with a large category of spend, or a strategic tier-A service you will often achieve the following:
· enhanced pound note savings value,
· service optimisations unattainable with the incumbent, or without shaking thing up a bit.
2. Why Not Just Renegotiate?
As mentioned above, competitive tension will drive aggressive pricing from bidders. The process, if run well, will also create a bidder group that wants to collaborate with you. As a partner, not just for the added revenue it will generate.
Potential commercial benefits will be far lower if it is a long-standing contract. Typically, throughout a contract, the pricing slowly becomes inflated compared to the market due to the typical yearly price increases that service providers tend to impose (often with little rationale). This means the business will be trying to renegotiate from a position of inflated costs rather than the actual market rate, at most, it may help to mitigate a new or earlier increase.
Outside of commercial benefits, the RFP also allows the business to establish whether you have the best provider in the market, without any form of commitment to change if you find your provider to be the best. It is worth doing a “state of play” review before going to market, to establish if the incumbent meets your needs from the following perspectives:
Service delivery,
Cost,
Reporting and
SRM.
However, renegotiation can be useful, for example, if you do not have the resource capacity to conduct a robust RFP process, or if it is a low-spend category/product that will not drive impactful savings. What we would recommend is you do not enter a renegotiation without a Plan B fallback of being willing to go to market. It’s not the purpose of this paper but there are many pitfalls to simply beating your incumbent up for benefit and most of the strategic thinkers on procurement have moved away from this as a long-term strategy for resilient relationships.
3. Will it Enable me to Save Money with Incumbents?
As a warning to the points within the renegotiation section, there is generally the expectation that the incumbent would always want to secure a renewal rather than lose the business. Unless there is a determining factor as to why they want to step away. This means that the incumbent supplier will still try to sharpen their pricing. Whilst this will often not achieve the same market pricing as an RFP, it will still reduce the prices paid currently, meaning savings can still be banked within the category with lesser degrees of change.
The other issue is that oftentimes the incumbent will supply a reduction that still sits within the ballpark of their existing pricing rather than offering drastic reductions. The reason is that if they go excessively low with their reduction an experienced Buyer would be expected to start questioning the incumbent's integrity on earlier price increases.
It is worth noting that whilst from experience, incumbents do not typically offer the same savings compared to switching to a new provider, a change of supplier also comes with its own challenges/associated costs. These additions will need to be evaluated against the savings position, business appetite and budget.
Another good way to approach the issue is to be clear at the outset that you will go to market at a set point in time. You may have a 3-year deal with an option to extend for 2, in which case you can be clear with all incumbents that, at 3 or 5 years, they will be tested. This takes the tension out of the discussion and focuses the mind of the supplier to deliver continuously.
4. How do I maximise the impact of an RFP/Tender?
There are several ways to maximise the impact of an RFP, but one crucial aspect is the presentation phase. Conducting presentations BEFORE shortlisting gives all bidders a first chance to sharpen their bid (i.e., negotiating without formal negotiations). It also gives you a chance to gauge how aggressive the incumbent may or may not be.
After this phase and any down-selection, the process should allow for multiple rounds of negotiations to drive the best pricing. Ensure that the negotiations are done either face to face or in formal virtual meetings, an individualised approach is always better than a cold unemotive email. Decide on a maximum amount of negotiation rounds, with a stern cut-off, for best and final pricing. Ensure that all bidders know this best and final position concludes negotiations and if they are not able to compete with other pricing, they may well be eliminated from the process.
Ideally you should have around 8 – 10 bidders present to maximise competitive tension; this will ensure continued strong negotiations as well as help to push for the best pricing and service provisions throughout the process. Most sales teams make every effort to impress when they know their core competitors might win over them. Additionally, make sure the smaller or more niche suppliers have confidence they could win the deal and avoid inviting companies to make up the numbers. The very best sales teams will decline to participate if they have not pre-qualified you, so put in the pre-work to make sure you get the best submissions.
Procurato recommends that during down-selection towards the final stages or post-final selection/during contracting, you keep two bidders in the running to maintain an optimal level of competitive tension. It is also recommended to have a backup in case contract discussions fall through. A bidder informed that they were unsuccessful will always be sour if they are then told they were successful due to the winner failing.
During the process, lean on the bidder's expertise, and always ask open-ended questions to allow them to prove their ability. Additionally, always ask for alternative pricing models as the bidder may have an idea of how they could drive enhanced commercial benefit outside of typical line-item pricing (i.e., retainer, fixed fee models, or risk and rewards models in professional services). These other models will also show how well they understand your business.
How could you optimise the RFP process and drive efficiencies?
Given the continued rising costs businesses are facing these days, including increased personnel costs, driving efficiencies in the RFP process is critical in mitigating its cost impact.
1. How do you improve on the overall process?
The first and most important thing is to ensure your team fully understands the business goals that need to be achieved from the process, these could be:
Savings,
Service Optimisation,
Stronger SRM metrics and controls.
Without knowing this, the RFP may focus on the wrong thing and end up not being fit for purpose. On top of this, ensure your team understand what it is they are sourcing (if they are not a dedicated category manager). Always provide support from SMEs within the business. If your operating model does not have category managers, then your team's knowledge me be more general. This means that for complex purchases like integrated IT systems, they will need added support to fully understand what they are buying.
Share any strategic company plans with the team, these can be in the form of:
ESG,
Changes in organisational structure
Outsourcing plans
Higher-level objectives / options (e.g., we would be open to some form of outsourcing proposal)
These should be passed on BEFORE the RFP so that the team can ensure they ask the right questions and understand what the future state will be to articulate that to the bidders. For example, if you plan to change IT infrastructure and your team only shares the as-is state for integration. Suddenly you will face a plethora of problems upon system change, as this wasn’t specified during RFP scoping/briefing.
Finally, ensure you have the right personnel and the right VOLUME of personnel on the project to deliver the work at pace. A category expert, a data/spend analyst and an SME are usually the perfect trifecta for delivering superior results. Do not over-encumber the decision-making processes. Creating multiple decision committees and sign-off levels will only slow the decision and implementation process down causing a major impact on savings realisation.
2. How can you maximise the RFP process benefits by doing things more efficiently?
The right software can massively streamline the process, from basic analytics to full system-led automation. The software will reduce manual work and enhance accuracy, cutting back on the workforce costs and timeframes of running RFPs.
Excel and PowerBI are crucial and often readily available in organisations. They enable a holistic review of spend data which enables a strategic review of addressable spend, per category, and per vendor, making targeted RFPs easier to achieve. With the right analytics, your team will be able to target high-value areas with the largest potential savings gain.
The team needs to be optimally structured with the right ability at the right level to get the best out of the RFP, preferably:
Category Manager per core category,
Analyst supporting the team,
Business Unit SMEs.
A core example is that your IT team know better than anyone, the current state of infrastructure i.e.:
what systems are in place,
the complexities of change,
current roadmaps,
resource availability for change,
So, engage SME stakeholders at the beginning, get buy-in and create a smooth RFP process that transitions into a clean implementation.
Finally, the harder part to manage is removing any potential bias. For example, if your team member has
a strong relationship with the incumbent,
previously worked at a potential bidder,
has a friend on the sales team.
This will hamper the ability of the team to work in an unbiased, open and transparent way, which depending on the sector, could lead to challenge by any bidders that feel the process was unfair, especially in OJEU Public Procurement, or other heavily regulated sectors.
3. Examples of Technologies for RFPs to aid efficiency.
There are many procurement systems available but the first thing to do is to understand your in-house technologies, explore them and find out what capabilities they have or do not have. Find out if they can integrate and work with other systems. Only once fully explored, work with IT to review change capabilities and create a future-focused technology roadmap.
Some core systems used in the RFP process are:
Ariba Sourcing: Part of SAP Ariba procurement suite, offering RFP management and sourcing capabilities,
Oracle Procurement Cloud: Supplies comprehensive procurement tools, including RFP management,
Procurify: Procurement platform with RFP capabilities,
Excel and PowerBI are crucial for data visualisation,
Independent software such as Procurato’s SpendQube for swift analytics and spend profile insight.
Consistent with our principles above, Procurato would recommend an RFP in this area if you feel you need a new RFP system. This will ensure you select the right system and partner that matches your needs. It will also, as you write the scope for the system, push you to think how you really want to run RFPs, what ancillary benefits you want from the tool, and how it will work in conjunction with your Procurement team
.Procurato – Our Credentials
Procurato is a consultancy founded on the principles of Procurement Best Practice. We are experts with a keen focus on
· Category Strategy/Strategic Sourcing,
· Procurement Transformation,
· Outsourcing and
· Opportunity Assessment Benchmarking
With around 80 years of collective Procurement experience, our team truly are industry specialists who are “Do-ers” rather than observers. We drive real savings delivery through sourcing execution excellence, rather than supplying generic PowerPoint recommendations.
Deep ability in complex areas:
understanding of levers and techniques, coupled with
extensive benchmarks and
market insight
High quality, dependable, trustworthy, effective, and independent – we focus on the job at hand. While still proving to our clients that we are real people building real relationships.
We hope this pre-amble helps supply context as to who we are, but enough about us. This paper is not about selling our business, this is about supplying core information on one of THE MOST important Procurement levers, the RFP.