Not familiar with this supply chain TLA? (Three Letter Acronym) A Request for Proposal is asking a supplier to quote pricing for a good or service. It may be called an RFQ, an RFX, or a Bid. Different names for the same concept.
RFPs are a major part of every procurement group’s responsibility. They can be as simple as getting an email quote for a part or as complex as determining an offshore supplier for a customer service department (and more!). When used effectively, an RFP can give you a lot more than just pricing. It can provide great market information that drives pricing and service improvements, can help explore supplier offerings, get value-added services at little to no cost, and of course result in cost savings or cost avoidance. Getting ready to conduct your own RFP? Here are 4 tips on helping you get the most out of your effort.
Pricing Format
- Often we see companies ask for pricing without indicating the format of the pricing. Or they only ask for a line-item pricing quote. Instead, ask for the pricing in multiple ways. Push your supplier to provide basic pricing, but then also bulk pricing, tiered pricing, take-or-pay pricing and bundled pricing. Not only does this give you more options, but it also provides more insight into the supplier’s cost model and gives you more information to work with when negotiating. It will also enable apples-to-apples comparisons.
Current Metrics
- A supplier can have the best pricing in the market, but if their on-time delivery is 60%, they may not be a good fit for your needs. Ask your supplier for their current performance metrics such as on-time delivery, lead times and any other indicators you know will be important to your business.
Value-Adds
- What value-adds is your supplier willing to provide with their quote? A dedicated customer service team for your account? Holding floor stock on your behalf? It’s best to leave this question open-ended. As you collect all your results, if your ‘winning’ supplier isn’t offering something another supplier will, then ask for it!
References
- Ask for at least two current customers of your supplier that you can contact. Even though they will surely pick a couple that they have a great relationship with, those references will be able to give you additional insight into how the supplier operates and how they handle challenges.
At Waypost Advisors, we offer sourcing management resources with expertise and experience to help you get the most out of your RFP, and build capabilities in your existing team for long-term success.