Outsourcing projects can be a significant undertaking and it's important to get your sourcing project in a manageable form. This often results in people using the RFP (Request For Proposals) process in order to get a comparison of the potential providers and their differing sourcing terms and conditions. While an RFP definitely helps in many situations, the process can also bring time delays, project element disconnects and increase consulting costs. All of which may not have been necessary at all if the question of whether or not to use the RFP process was asked in the first place.
The RFP Dilemma
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 provides for significant distribution and response
It prompts suppliers to ensure their responses are based on facts and address the detail of the requirements
Using a standardized process ensure no concerns of impartiality
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.
This list of benefits is by no means exhaustive, but should hopefully acknowledge that there are certain benefits associated with the RFP process. But to cut to the chase, these are far outweighed by the disadvantages.
Best Price + Excellent Commercial Terms? Great Deal
More often than not the RFP process can result in the selection of a supplier for the wrong reasons. For example, a supplier might be discounted in the RFP process for submitting too many mark-ups to original documentation, or for being too expensive. However, often the suppliers who are chosen due to a perceived 'ease of working together' (i.e. few mark-ups) will change control themselves out of the original agreements. This is a common trait amongst certain suppliers and it is important that your sourcing advisor can recognise the likely candidates. The net effect is that delivery and associated savings end up being a world away from where the client's vision and business case were at the outset. Further, those suppliers chosen on having the cheapest solution will often be delivering to such a tight margin that the engagement has a lack of senior attention within the supplier, resulting in second-rate delivery and a client team that is regarded internally by the supplier as the 'B' team. The 'A' team are reserved for highly profitable, mainstream clients. Again, something your advisor should know as a matter of course.
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.
Ignoring the importance of experience and real world knowledge of how the engagement process should be done can be a dangerous path to follow, but many times the people writing the RFP and even their advisors have never actually completed the process previously. They read about it and they try to force best practice into an environment which may not support it. They don't understand the commercial risk that large engagements can bring with them and they don't understand how to spread that risk fairly among the participants. The right advisor will be on top of everything and will have their eye on strategic and commercial levers such as value creation, transparency, strategy, governance and vision.
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 - You Need An Advisor You Can Trust
Obtaining a trusted sourcing advisor is fundamental to a successful outsourcing journey. Your advisor should have experience and deep understanding of all aspects of an outsourcing journey - buying, selling, advising, and legal considerations. They need to have 'been there, done that'. Without these four aspects the contracts signed with the chosen supplier will almost certainly be suboptimal.
The right advisor may well be able to save you a lot of time and money in your sourcing process, but be mindful when using RFPs that they can be a way for your advisor to drag out the process and increase their fees.
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.
The RFP Dilemma
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 provides for significant distribution and response
It prompts suppliers to ensure their responses are based on facts and address the detail of the requirements
Using a standardized process ensure no concerns of impartiality
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.
This list of benefits is by no means exhaustive, but should hopefully acknowledge that there are certain benefits associated with the RFP process. But to cut to the chase, these are far outweighed by the disadvantages.
Best Price + Excellent Commercial Terms? Great Deal
More often than not the RFP process can result in the selection of a supplier for the wrong reasons. For example, a supplier might be discounted in the RFP process for submitting too many mark-ups to original documentation, or for being too expensive. However, often the suppliers who are chosen due to a perceived 'ease of working together' (i.e. few mark-ups) will change control themselves out of the original agreements. This is a common trait amongst certain suppliers and it is important that your sourcing advisor can recognise the likely candidates. The net effect is that delivery and associated savings end up being a world away from where the client's vision and business case were at the outset. Further, those suppliers chosen on having the cheapest solution will often be delivering to such a tight margin that the engagement has a lack of senior attention within the supplier, resulting in second-rate delivery and a client team that is regarded internally by the supplier as the 'B' team. The 'A' team are reserved for highly profitable, mainstream clients. Again, something your advisor should know as a matter of course.
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.
Ignoring the importance of experience and real world knowledge of how the engagement process should be done can be a dangerous path to follow, but many times the people writing the RFP and even their advisors have never actually completed the process previously. They read about it and they try to force best practice into an environment which may not support it. They don't understand the commercial risk that large engagements can bring with them and they don't understand how to spread that risk fairly among the participants. The right advisor will be on top of everything and will have their eye on strategic and commercial levers such as value creation, transparency, strategy, governance and vision.
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 - You Need An Advisor You Can Trust
Obtaining a trusted sourcing advisor is fundamental to a successful outsourcing journey. Your advisor should have experience and deep understanding of all aspects of an outsourcing journey - buying, selling, advising, and legal considerations. They need to have 'been there, done that'. Without these four aspects the contracts signed with the chosen supplier will almost certainly be suboptimal.
The right advisor may well be able to save you a lot of time and money in your sourcing process, but be mindful when using RFPs that they can be a way for your advisor to drag out the process and increase their fees.
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.
About the Author:
Looking to find the best advice on strategic outsourcing consultants, then visit www.Elix-IRR.com to find the best advice on Sourcing Advisory Methods for you.
