Devising an RFP That Works

Add comment March 12th, 2008 Michael Lamoureux

A generally accepted (and obvious) “best practice” is to procure services via a robust competitive methodology. In general, this is achieved by issuing a comprehensive request for proposal (RFP) to each of the potential vendors for that service. The practice has now become so common that many organizations have developed a standardized template (or templates) and are able to rapidly churn out RFPs to meet the demands of its business unit customers. This semi-automated approach accelerates the overall procurement timeframe and enables the organization to rapidly achieve superior results for the procurement of commodity products and services. Unfortunately, as with any automated process, this approach has also led to a reduction in critical thinking that is applied to each RFP.

Hear, Hear! This is precisely the point I was trying to make in the doctor on Technology RFPs: Don’t Put The Cart Before The Horse!, although I was restricting my attention to technology RFPs at the time. “Filling in the blanks” on a template isn’t sufficient for large and/or complex projects. The RFP needs to be carefully composed if you are to achieve maximum value from it. That’s why it was nice to see the article Beyond the Template over on SourcingMag.com which outlined some best practices for:

• effectively creating a competitive environment
• clearly defining the services being procured
• enabling the objective evaluation of vendor responses
• achieving optimal terms, conditions, and pricing in the competitive environment

The article may be services centric, but it still has great advice.

Creating a Competitive Environment

• Accentuate the positive
  Why should the supplier want to engage in a relationship with you?
• Clearly specify what you hope to achieve
  What are your goals? What do you require from the supplier?
• Enable the vendors to differentiate themselves
  Be sure to allow some open-ended responses. Check-the-box, multiple-choice radio-buttons, and fill-in-the-blank does not leave much room for vendor differentiation.
• Ensure the vendors understand your environment
  How do you work? How will the relationship be managed? What do you expect from a supplier?
• Emphasize the importance of the transition period
  If you are transitioning away from a current supplier or a current process, be sure to explain how the transition process is going to work and what you expect from the supplier.

Defining the Services

• Know what you want
  An RFP should not be used to gather information to help the enterprise decide what it would like to procure — it should be used to gather information about what the organization is going to procure and how it is going to go about the process.
• Define the boundaries
  If you are procuring a product, who is managing the transportation? If you are procuring a service, what capabilities will the supplier be providing, what capabilities will you be retaining, and how do you define the break-points?
• Define the measurement criteria
  How will the supplier’s performance be measured?
• Put yourself in the vendor’s shoes
  Read the RFP from the viewpoint of a supplier. If there is anything that requires clarification, then clarify it. If you’re unsure if it is clear or complete enough, have an uninvolved third party (such as a colleague in another department) review it.

Objectively Evaluating Vendor Responses

• Establish discrete requirements
  What do you need at a minimum to consider a supplier? If you are unsure, do a multi-round process where you ask for general proposals on how a supplier will solve a problem, followed by a request for specific proposals once you have selected an approach.
• Weight the requirements according to their relative importance
  In order to score the proposals to select a winner, it is important to give more weighting to key factors.
• Define the proposal pricing format
  This will allow you to compare proposals apples-to-apples.

Achieving the Best Buy

• Make it clear that RFP responses are contractually binding
  Of course, this only applies to the final RFP/RFQ in a multi-round process.
• Use contract-ready requirements in the RFP
  This will prevent snags in the negotiation.
• Don’t put off until later what you can do now
  Do your best to make sure that the requirements in the RFP address all key considerations. After all, how likely are you to receive favorable terms regarding any items you forgot to address once you enter into a deal and lose the competitive environment?

This is great advice and, if you have the time, the full article is worth the read.

Entry Filed under: Supply Management Best Practices, e-RFx

Improve your eSourcing results

Add comment January 16th, 2008 David Bush - Iasta

SCDigest ran a commentary recently which spelled out five recommendations for improving your results for eSourcing.

1. Prioritize The Trinity Of Reliability, Quality And Price

Very true, eSourcing does not change what you would normally do when going through a sourcing exercise, it just enhances it. If you sense the loss of a critical milestones, recalibrate and get it right.

2. Use e-Sourcing Strategically

SCD claims here that not all projects are suited for eSourcing. This is a classic trap and not true. It is true that not all things should be reverse auctioned, but teams should get used to using other tools like RFx and optimization for specialized opportunities. Additionally, the sourcing team should be capturing the spend information to maintain quality reporting in the management dashboards.

3. Provide Clearly Defined And Relevant Specifications

Again, to point one, have good specs whether you are on or offline line and issuing a bid. Otherwise, you should just “re-order” and not “source”.

4. Focus On The Quality, Not The Quantity Of The Supplier Pool

Here is a good point and where your sourcing organization needs to get serious about using RFx technology to the fullest of its capabilities.

5. Encourage Suppliers To Participate In Shaping Negotiating Terms

Using collaborative bidding tools like multi-round RFx or optimization allow a much more interactive bidding experience and where suppliers stay engaged and productive for the entirety of the project.

Don’t forget the most important one!

Utilize your eSourcing vendor for high quality support and guidance in eSourcing best practices. In all likelihood, they have already been there and done that, with regards to the problems that you are staring down.

Entry Filed under: General, Optimization, Reverse Auctions, Supply Management Best Practices, Technology, e-RFx

Process integration for eSourcing

3 comments January 10th, 2008 David Bush - Iasta

Supply and Demand Chain Exec has a fantastic article on eSourcing process integration, which is written by Andy Sealock of Pace Harmon. If you can get past the incredibly unfriendly user obstruction for printing and viewing the article on 7 different pages, you will be able to really get a ton of great information. In fact, I would say that this is the best and most comprehensive content I have read about eSourcing project management.

This comes off my recent post, The Per Event Paradigm, where I tried to dissuade companies from under committing to the eSourcing process. This article validates that principle with many examples of best practices for setting up the proper eSourcing frame work and foundation. I will not steal too much of the thunder from the article, but Andy does say, “a common pitfall is to squander that investment by not executing properly on the associated process integration, and therefore never realize the value projected in the business case used to justify the tool.” Well put.

Some of the key principles that are highlighted include:

• Establish Uniform Data Definitions and Provide Training
• Build Data Collection Requirements with the End Result in Mind
• Data Attributes To Capture for Project Management (including project status levels)

The final page also goes into best practices for eRFx and reverse auctions, which are always good to refresh and understand. One of the comments he makes is:

Companies can better leverage e-sourcing tool auto-scoring capabilities for vendor proposals by structuring as many requirements as possible in the form of binary (yes/no) answers, or requiring the vendor to enter a specific value, or choose from a list of multiple-choice responses. This improves evaluation process efficiency as the assignment of weights to these requirements can be built into the tool ahead of time. The tool will then apply the appropriate weights to vendor proposal responses and auto-score them without manual intervention.

I do agree with this principle, but am not sure the practice can be enforced consistently. It is like telling people that an auction should be awarded to the lowest bidder because all other factors have been normalized. This is true, but very difficult to accomplish in tight time frames and other unknowns.

The article ends brilliantly:

Process integration considerations for a successful e-sourcing tool rollout may seem like a substantial amount of work (and it is), but in reality it is a small investment relative to the payoff received in the form of enhanced efficiency and effectiveness from the sourcing process. With significant dollars and time on the line, it is vital that the enterprise plans ahead and allocates sufficient priority and resources to process integration when making a decision to implement an e-sourcing tool.

Entry Filed under: Functionality, General, Project Management, Reverse Auctions, Supply Management Best Practices, Technology, e-RFx

Sourcing Innovation breaks down eRFX, eAuctions and optimization (and 10 other days)

Add comment December 19th, 2007 David Bush - Iasta

The Doctor, who runs Sourcing Innovation blog, is never short on heavy hitting analysis. I particularly like when he takes on topics in eSourcing (big surprise). Last week, he had an in depth breakdown of the core functionality that most think of for eSourcing -eRFx/eAuctions. Additionally, you will notice his theme of the 12 days of X-emplification and there are others days which have great information on topics such as spend analysis and contract management.

From his prologue, Michael sets up the series with, “This year, in the spirit of giving, and in the spirit of Questions to Ask your Optimization Vendor, the doctor exposes the elephants in the room (Part II), and the doctor goes mental (on Auctions and on Optimization), I’m going to give you twelve posts on twelve different sourcing and procurement technologies and services that expound upon the questions you should be asking, the answers you should be expecting, and, most importantly, why, so that when you set about choosing a technology to help you with your sourcing and procurement challenges, you choose the right one.”

Needless to say, his posts are packed with actionable information and, as should be expected, not light on the criticism of any vendor technology that lacks what he feels is critical for success. I considered offering some analysis of my own, but his spiked eggnog version of holidays, speaks for itself. My only recommendation is to take his analysis on each technology that applies to your company and reformat it for your own needs and challenges. These are worth saving.

Entry Filed under: Functionality, General, Reverse Auctions, Supply Management Best Practices, Technology, e-RFx, e-Sourcing Marketplace

e-RFx Best Practices and Associated Benefits

1 comment October 3rd, 2007 David Bush - Iasta

e-RFx, likely one of the most common acronyms in the procurement, sourcing, and related literature, does not stand for anything in particular, as the X can be a placeholder for I, P, Q, or B which stand for Information, Proposal, Quote, or Bid (though the latter is primarily used in the public sector).

Some benefits of the e-RFx process include:

• Sourcing Cycle Time Reductions
  An information gathering and analysis cycle that used to take months can now be completed in a couple of weeks as web-enabled e-RFx tools allow for the instant sharing of documents between an organization and its suppliers.
• Centralized Repository
  One of the most significant benefits of an e-RFx solution is the centralized data repository that allows for all of the organization’s supplier and sourcing related information to be stored in one common location and accessed by all relevant organizational stakeholders.
• Collaboration
  e-RFx technology can be one of the most significant enablers of collaboration between team members, stakeholders, and suppliers - as all parties involved can come together through the use of a single tool to share information, ask questions, and receive a response.

The best way to ensure that your e-RFx is accompanied by all of the benefits it can bring is to employ best practices. Some of the best practices that can be employed include:

• Communication with Suppliers
  After the RFx has been sent out to the suppliers, follow up with a phone call to make sure they received it, can fully access it, and understand what they have to do to respond. Be sure that they clearly understand any specialized or customized requests and that their questions get answered promptly. Also be sure to follow up with them immediately after the award, even if they lose, to help them understand why they did, or did not, receive an award and what they can do to make them more attractive as a supplier in the future.
• Understand the Requirements
  Be sure to understand the technical specifications and requirements, baselines, and demand forecasts. Solicit input and feedback from all key stakeholders and be sure to include all of the information in the RFx up front to insure that the bids received are accurate and that the suppliers will be able to deliver to spec.
• Manage the Process
  Keep on top of the process from start to finish. Follow up with internal stakeholders regularly, follow up with suppliers in a timely manner, start the analysis phase as soon as the reply deadline has passed, and make the award decision quickly.

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For more information on the e-RFx process, it’s benefits, and associated best practices, see the e-RFx for Total Value Management: The Strategic Sourcing Workhorse wiki-paper over on the e-Sourcing Wiki. In addition to more detailed information on a successful e-RFx process, it also overviews some of the internal and external pressures that the e-RFx process can address in addition to basic e-RFx requirements.

Entry Filed under: General, Supply Management Best Practices, Technology, e-RFx

A Means to an End

Add comment July 31st, 2007 David Bush - Iasta

As a follow up to my recent post on Good People First, Good Systems Second, I’m going to highlight a recent article in Supply and Demand Chain Executive: e-Sourcing Tools - Means to an End. This article points out that in addition to good people, you also need effective process definitions and process integration in order to realize the full value provided by an e-Sourcing Tool.

The article points out that one of the primary benefits of an e-sourcing tool is that it allows staff to enter information in an autonomous, distributed manner while also allowing management access to reports that consolidate and aggregate the information into a comprehensive picture of department-wide activity but that if the staff responsible for providing the information are not aligned and using the same data definitions and usage guidelines, then the reports generated will have little or no value.

Therefore it is important that you establish uniform data definitions and provide training, build data collection requirements with the end result in mind, and capture the right data.

The article also lists ten crucial data elements that need to be captured:

• Project Type
• Project Status
• (Over-arching) Program
• Savings
• Vendor Diversity Opportunity
• Project Description
• Project Status Update
• Risk Indicator
• Issue List
• Priority

As well as giving a number of tips for online eRFX and Reverse Auctions, including:

• Auto-scoring capabilities can be better leveraged by structuring as many requirements as possible as binary yes/no or numeric value answers.
• Vendor training saves time and effort.

In conclusion, process integration considerations for a successful e-sourcing tool rollout may seem like a substantial amount of work (and it is), but in reality it is a small investment relative to the payoff received in the form of enhanced efficiency and effectiveness from the sourcing process. With significant dollars and time on the line, it is vital that the enterprise plans ahead and allocates sufficient priority and resources to process integration when making a decision to implement an e-sourcing tool.

Entry Filed under: Functionality, General, Reverse Auctions, Supply Management Best Practices, Technology, e-RFx, e-Sourcing Marketplace

e-Discovery Stage 3: Execute with Efficiency and Agility

Add comment July 11th, 2007 David Bush - Iasta

Throughout these kinds of sourcing events, sourcing department people can be a big help to Legal by running interference with the service providers. Once Legal has identified the sourcing need and determined what service provider’s should be invited to participate in the event, the speed and efficiency of the sourcing event is a direct result of how disciplined an environment you create for the service providers to compete in.

What does this mean? It means the Legal has a whole slew of other problems to deal with and you can be a big help by running a tight ship on the sourcing side. Legal needs the due diligence done and delivered to them in a way that is meaningful, actionable, and on time.

In our case study, the team collaborated with Legal and IT to evaluate the RFI responses which were submitted. Workplace disruption was eliminated by the evaluators all working remotely via their browsers.

When all the scores were tallied, the final RFI scores ranged from 84 to 94 across all 10 service providers

Just as the evaluations were finishing up, the bidding deadline for the service providers arrived. The bids submitted by these same 10 service providers ranged from a little over $148,000 to just under $1.6 Million.

Now, if you remember back to the beginning of this multi day post – Legal has a completely different way of looking at the world and they must consider various risks and threats which you are not privy to, nor are you paid to worry about.

Legal is not going to look at the bids and just pick the lowest bidder (nor should they). There is way too much at stake to be that flippant. What Legal needs from sourcing here is a sound (and understandable) benchmark for them to base an important business and risk management decision on.

In our case study, the team gave Legal exactly that in the form of a Matter Value Index™ which combats Legal’s fundamental tension: keep costs down but don’t cut corners on quality (because nothing is ultimately more expensive when it comes to E-Discovery).

To understand the value differentiators of each service provider, to say that they shook out with scores between 84 and 94 is not as meaningful to Legal as demonstrating how the service providers break out on a percentile basis.

Similarly, when looking at how the bids stack up, saying that the bids ranged from a tick over $148,000 to a tick under $1.6M would probably only serve to further muddy the waters. With bids that disparate Legal looks at that and, as they are paid to do, starts to sweat about all the potential risk jackpots a bad decision could land the client in. They need more clarity.

Like the RFI percentile snapshot, the team moved the bids into an inverted percentile snapshot formula (wherein the lowest bid is the 100th percentile and the highest bid is the 0 percentile):

Once the team created both the RFI and Bid Percentile snapshots, these percentiles are combined to calculate each service provider’s Matter Value Index™ score. (The maximum score is 200 indicating highest RFI score and lowest bid for any particular engagement.)

The Matter Value Index™ synthesized the entire E-Discovery due diligence effort in a way that was clear, meaningful, and actionable – which was precisely what Legal needed.

The success of the engagement team’s effort was inextricably tied to the following four factors:

• Rule # 1 – The team was non-disruptive as possible to Legal’s deliberative process and managed the entire process – from personnel interviews to service provider hand holding - with complete and utter discretion.
• Rule # 2 – The team understood how the multi-billion dollar E-Discovery market works.
• Rule # 3 – The team understood what questions to ask Legal and how to tease out the threat matrix from personnel interviews
• Rule # 4 – The team understood how to communicate with the various principals in Legal in a way that was meaningful to them.

If anyone is wondering, that’s how you build a bridge to Legal.

Entry Filed under: General, Supply Management Best Practices, Technology, e-RFx

e-Discovery Stage 2: Understand the Risk Profile

Add comment July 10th, 2007 David Bush - Iasta

Today’s theme is covering the aspects of how to make this type of project successful and and frictionless for all involved parties. Understand that it is your job – not legal’s- to be adaptive as far as process goes. The following rules are essential for project kick-off and administration:

• Rule # 1 - You need to be as non-disruptive as possible to Legal’s deliberative process and you must demonstrate complete and utter discretion.
• Rule # 2 - You need to understand how the multi-billion dollar E-Discovery market works.
• Rule # 3 - You need to know what questions to ask Legal.
• Rule # 4 - You need to know how to communicate with the various principals in Legal in a way that is meaningful to them.

A simple recent case study shows all 4 principals at work.

Before we start, it is worth pointing out that from any company’s perspective E-Discovery can rear its head in a number of ways including, but not limited to, all categories of litigation, M&A activity that attracts scrutiny from federal regulators, internal investigations, as well as governmental and regulatory investigations.

In this particular case study, “Company A” was faced with an E-Discovery challenge. As is often the case around the country every day now, Legal was abruptly faced with a need to identify, locate, preserve, defensibly collect, and ultimately have attorneys review ESI involving a significant number of employees.

Based on initial interviews with IT staff, Legal gathered some initial metrics which they then used to solicit (via their outside law firm) bids from three E-Discovery service providers. Those bids ranged between $500K and $2M. In addition to the heartburn-inducing price tag, there were many moving pieces to deal with and understanding what value each service provider delivered, as far as helping mitigate the overall legal risk, was not something the was readily apparent. Thankfully, this opened the door for some sourcing best practices to bring value into the fold. It also presents extreme FUD which snuffs out the competitive sourcing flame to those not ready to address it properly.

The engagement team (“the team”) met with Legal to triage the challenge. The team listened to Legal explain the problem in their words and teased out from them what deliverables they needed. The team then interviewed IT and nailed down as many specifics as were available as to the nature and quantity of the ESI media. Again, as is frequently the case, the media consisted of a combination of all kinds of media; hard drives, backup tapes, and DVDs containing zipped network files etc.

With a full understanding of what the sourcing needs were as well as a firm timeline, the team went to work on sourcing this E-Discovery event.

Step 1: Using the information gleaned from interviews of both Legal and IT personnel, a RFx survey was constructed. Respondents were required to answer several dozen targeted questions covering everything from their company’s general info to their corporate liability policies to hard core technical questions to sample reports to training material – the Full Monte. The technical questions posed were directly responsive to the technical needs as articulated by IT. Further, there were several sections of questions which drilled down into the granular (and tricky) technical issues which were directly responsive to both Legal and IT’s articulated concerns.

Step 2: The team assembled a line item schedule that was anchored by the hard units known to be in the possession of IT. Rather than allowing service providers to submit their own line items (which varies from vendor to vendor making apples to apples pricing comparisons virtually impossible), all the service providers were required to conform to a unified line item schedule. They could bid whatever they wanted – they just had to do so in a uniform environment that leveled the evaluative playing field.

Step 3: The team worked with Legal and outside counsel to identify an appropriate pool of service providers that would be invited to the sourcing event. 10 E-Discovery service providers were ultimately invited.

Step 4: The invited service providers were given 5 business days to respond to the RFI.

Step 5: Once the service providers submitted their respective RFI responses, the team remotely collaborated with Legal on the line by line comparative evaluation of each service provider’s response.

Step 6: At the same time the evaluation team got to work on the RFI responses, the service providers were then given access to the sealed bid event and given another 48 hours to submit their bids based on the line items approved by Legal.

Step 7: All 10 RFI responses were evaluated in the same 48 hours window as the bidding was taking place and within 20 minutes of close of bids, the entire Due Diligence package was sitting in Legal’s and outside counsel’s inbox.

From the moment the engagement team was pulled in to the time the Due Diligence package was submitted was less than 2 weeks. This is one of the primary benefits of eSourcing - efficiency and sourcing automation. This compression in cycle is a fantastic benefit, especially relative to the traditional means of this category. But wait - there’s more…we did not stop the process at the RFx stage.

Entry Filed under: General, Supply Management Best Practices, Technology, e-RFx

e-Discovery Stage 1: Ending the Cold War

Add comment July 9th, 2007 David Bush - Iasta

For the next three days, I will be covering a concept that most companies do not even think about strategically sourcing or using an eSourcing tool to coordinate. These companies are potentially making VERY COSTLY mistakes. If you are ever going to really think about new ways to approach cost savings and will consider taking on corporate “sacred cows”, you will want to bookmark this and understand it. For the last year, we have been assisting our clients with sourcing the service of e-Discovery, defined below.

Litigation discovery, the process of collecting evidence and information necessary to all litigation, once meant thumbing through a finite volume of readily identifiable paper information in search of information relevant to proving or disproving liability. The volumes of relevant information were manageable using manual organization and search techniques, and file cabinets were the likely repositories of the information. In recent years, the everyday use of e-mail and other forms of electronically stored information (“ESI”) has radically changed the discovery process, materially increasing its scope, complexity, and expense. Electronic discovery (or “E-Discovery”) has mushroomed into a multi-billion dollar a year industry. Further, amendments to the Federal Rules of Civil Procedure, effective 12/01/06, (for example – see) move the adversarial discussion of E-Discovery right up to the preliminary stages of these cases. One emerging byproduct of this clarity from the Courts is the potential for E-Discovery costs to almost immediately dwarf the cost of whatever it is that is in dispute. Needless to say, this is quite troubling for corporate legal departments which can potentially have thousands of these cases going on at any point in time. (See Fulbright Survey)

That is a good start to understanding what e-discovery is, but in the context of sourcing, it is a category that is so plump and juicy for savings that it shames traditional high value targets like office supplies, stampings and various other indirect items.

To understand the problem, it is important to build the knowledge base of the origins and current landscape:

• There is an historical prejudice when it comes to the law department’s view of procurement and sourcing professionals. This is similar to marketing departments that “protect their turf” and claim that procurement could never comprehend the intricacies of this category.
• Services can, and usually are, more complicated to procure than goods/products with finely detailed specifications. Much preparation is necessary to capture all the information that will be needed to effectively source the legal category and procurement must understand the risks involved and their impact on the decision.
• A number of environmental factors have merged into an opportunity for sourcing and procurement professionals to help end this fruitless Cold War.

  o First, the explosive growth of electronically stored information (“ESI”)
  o Second, the organizational risks presented by this dynamic, and rapidly evolving ESI matrix and the resulting operational and financial burdens these risks place on those tasked with defending the institution in the legal and regulatory environments.

  It is this second factor that drives this post and discovers the opportunity.

• Electronic discovery (“E-Discovery”) is a major workload burden.
• With the advent of the new Federal Rules – corporate defendants will now inevitably find themselves in the position where fighting a particular case may not be worth the cost once one goes down the E-Discovery rabbit hole, which presents a tremendous opportunity for creative and agile sourcing deliverables which will earn procurement a lot of new friends inside legal.
• Innovative law departments are beginning to blaze the trail and build the business case.

Tomorrow, I will lay out a case study of how sound sourcing and procurement disciplines, if leveraged properly, deliver significant tangible savings deliverables that will keep you on Legal’s shortlist.

Entry Filed under: General, Supply Management Best Practices, Technology, e-RFx

e-Discovery + e-Sourcing = e-Normous savings

Add comment July 6th, 2007 David Bush - Iasta

Next week, I will be launching a 3 day series on the sourcing category of Legal e-Discovery. This is a very interesting area to develop strategy and focus for eSourcing, because of the benefits that we have seen very clearly to our clients.

The posts next week will systematically outline the process a company would go through to source e-Discovery strategically. This is normally not a category that many sourcing departments would consider, but should.

For more information, Forrester has developed a large amount of research on the subject.

Entry Filed under: General, Supply Management Best Practices, Technology, e-RFx

More on RFPs

1 comment July 4th, 2007 David Bush - Iasta

Monday, I detailed some concepts on how to improperly manage an RFP process. Today, I thought I would point people in the direction of how to issue an RFP that really manages itself. I think prospective bidders can see:

• sand : check
• ocean : check
• power, water, airstrip : check

Let the bidding begin at $10 million and have a very happy Independence Day!

Entry Filed under: General, e-RFx

How to guide for botching an RFx Process

Add comment July 2nd, 2007 David Bush - Iasta

Last week, I profiled some of the best practices for a reverse auction process. In the final point, I mentioned that better communication with suppliers would help build confidence (and thus participation) in the process. Here is a real example of what happens when most of the rules and suggestions from last week are disregarded. I originally wrote this as part of the eRFx Wiki Series.

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Profile: A global, multi-billion European pharmaceutical company determines the need for a large scale IT services procurement. An RFP is issued to gather information and pricing from a global pool of potential vendors. It is estimated this problem is costing the company millions per year in loss.

Problem: A sourcing team and committee are assembled and the first version of the RFx process is created. The document sent to suppliers is over 150 pages long with highly detailed questions regarding all aspects of the technology deliverable. Vendors can quickly deduce that the line of questions show a clear comprehension of problems from the buying team with no perceivable direction for the project or understanding of the solutions being requested. Essentially, the buyer is requesting the supplier to spend significant time and energy to respond to questions that have little chance to result in any business.

Result: Most qualified suppliers are able to quickly surmise that the buying team has gone into this project without doing proper research and can conclude one or multiple of the following:

• There is no budget for this project
• The questions are so onerous and detailed that a supplier (or incumbent) has already been chosen and the data is being collected to make it “official”
• The buyer is going through a price discovery exercise to create leverage against an incumbent
• This will never be awarded due to the lack of understanding on the front end
• The questions are so wildly variable that the supplier can forecast a potentially unprofitable/undesirable client

Once the RFP has been issued, most suppliers decline the invitation to bid. This results in a critical loss of supply base, reducing the available solution pool to unacceptable levels. Of the bids submitted, none are comparable side-by-side, making all of them useless in current form.

Eight months after issuing the request, the buying team formally announces to the entire supply base that the project has been permanently canceled. Internally, the waste of time and resources of the buying team creates such poor results that it may take years for the initiative to regain effective standing again.

Solution: The buying team should have taken a milestone based approach where an initial survey was issued to gather basic information and build knowledge internally about the marketplace and possible solutions or alternatives to traditional thinking. Once a deeper understanding was built, a subsequent RFx would be generated to follow up unresolved issues and deal with a more qualified group of suppliers. At this stage, the internal buy-in would be approved and communicated to the supply base to convey confidence and keep suppliers motivated in the process. As the bid methodically moves from stage to stage, each supplier that continues the process knows that they are competing equally and the investment being made will have a positive return on investment. Ultimately, every bid is measured by the end result and is affected by the number of companies that desire the business while remaining capable to perform it.

Entry Filed under: General, Supply Management Best Practices, Technology, e-RFx

Supplier Value Added Services

Add comment April 10th, 2007 David Bush - Iasta

Yesterday, I posted on Supplier Performance best practices. Today, I wanted to establish a list of things that suppliers should be providing, in some combination, to increase the value of their relationships with the buying organization. These items should be addressed in eRFx stage to determine the value add that each supplier brings to the relationship. This list is general and not necessarily comprehensive, but gives good insight into factors that should be considered and discussed with each valued supplier.

• quality reputation
• partnership differentiation capabilities
• established contacts and cross-company knowledge
• competitiveness
• proven business development support, e.g. promotions
• product design creation and development capabilities
• collaborative product design
• product selection/variety
• consumer support/service
• category management services
• supplier conversion support
• supply chain management
• inventory balancing
• order fulfillment rates
• order-to-shipment lead times
• returns management/defect support
• delivery terms
• payment terms

Many of these I found in a very old document that was meant for consulting suppliers on reverse auction strategy (which I cannot find now and was not developed by us). Some may be industry specific but give very good placeholders for the things that both the buyer and supplier should be considering to make a lasting, mutually beneficial partnership.

Entry Filed under: General, Supplier Performance, Supply Management Best Practices, Technology, e-RFx

Use e-Sourcing to combat Global Sourcing Supply Risks

Add comment February 7th, 2007 David Bush - Iasta

Back in October, Rob Parrish had a great post over on Riskape that outlined the top 10 factors to consider when sourcing globally. This post was very enlightening as it opens your eyes to not only how risky global sourcing can be but why you should be using e-Sourcing tools to help you manage the process. To help you understand how e-Sourcing helps, I’m going to address each of the risks separately.

Landed Cost
  Your eRFP can be set up to capture unit & freight & other costs and your e-Optimization tool can then take all of these costs into account when making an award decision.

Product Quality
  Your e-Inventory system can be used to track information about shipments, which can then be queried during the next sourcing cycle. If you find that one of your suppliers had a defect rate of over 100 parts per million, you know they have issues with quality and you can penalize them appropriately in your e-Auction or e-Optimization scenarios by noting that you will have to pay more per unit, by ordering extra parts, to ensure supply.

Logistics Capability
  Your e-RFP can include a logistics section and you can ask vendors to detail both their shipping methods, associated costs, and number of routes available. If one vendor only ships air, and only from one airport with one carrier - that’s risky!

Location
  You can capture complete plant location information in an e-RFP and then use simple online mapping tools to determine how far the supplier’s closest plant is from each of your receiving locations.

(Local) Trade Regulations
  You can capture not only relevant regulations in appropriately defined compliance section of an e-RFP, but also estimated costs to help you make your decisions.

Finances
  A good e-RFP tool will allow you to collect supplier financial statements under attachments and provide them with an NDA that you agree to in the collection of such information.

Time to Market / Supplier Responsiveness
  Your e-Inventory system captures delivery information, and a summary thereof can be loaded into your e-Contract Management / e-Compliance system on a regular basis to help you track and measure supplier responsiveness during the contract to correct, and fix, problems before they start.

Value Added Services
  You can specify which value added services are appropriate to you in an e-RFP and force suppliers to bid in an apples-to-apples manner that will allow you to easily and effectively compare RFPs.

Communication / IT Services
  You can provide your suppliers access to a supplier portal and gauge their IT ability through their ability to connect and collaborate with you through this portal, as well as have them specify their infrastructure capabilities in an e-RFP.

Human Toll
  It’s especially important to use common, written, language in cross-cultural dealings. At least a written word cannot be misheard - and you can add to and clarify an on-demand e-RFP as suppliers ask questions during the RFP process!

Entry Filed under: Functionality, General, Global Supply Issues/Risk, Supply Management Best Practices, Technology, e-RFx

Supply chain trends - 2007

Add comment January 11th, 2007 David Bush - Iasta

Looking through an article on World Trade Magazine, which had a section written by PRTM partner - Steve Pileggi, I noticed a description of six predicted supply chain trends:

• Continued growth in air freight as the standard way of managing global logistics;
• Broad national pressures in the U.S. for greater regulation on trucking for safety reasons;
• Push for customizable distribution that takes more touch points out of factory-to-consumer distribution;
• Greater emphasis on cargo security/screening as well as a push for security measures in public transportation;
• Further consolidation in semiconductors, network equipment, storage—essentially, those technologies that are becoming more commoditized;
• Continued erosion of middle management due to baby-boomer retirements that drive the market for professional management services (contracted expertise).

Following that up, was an additional item added:

Strategic sourcing gets, well, strategic. Smart companies get serious about sourcing from fewer vendors and the focus is not just cost. Vendor considerations such as time to market, quality, and technological sophistication move to the head of the list. Companies stop talking about collaboration and actually do it.

This is where a good sourcing process which includes an e-RFx product can be hugely beneficial. Collection and collaboration of large amounts of data can streamline the process of supplier evaluation and ultimately consolidation.

Entry Filed under: General, Global Supply Issues/Risk, Supply Management Best Practices, Technology, e-RFx