DeltaBid welcomes this guest post from purchasing professional André Kleinhenz. His research with European and American companies has shown that the most successful RFPs are for highly customized goods or services. Read on to find out why.
The development of a strategic sourcing department comes along with the decision to choose the right start for the first RFP process. Gathering valid and reliable information will be a tough and long task, but without information it is impossible to have a successful RFP. Therefore, at the beginning the client departments need to be constantly convinced in order to achieve the first important success stories.
A specific category to start with cannot be chosen as categories are no longer rigid frames, where goods or services can be clearly assigned to. Nowadays, categories often overlap each other as the tender content usually refers to more than one category. For example, which category is IT installation a part of if both Facility Management and IT are involved? Therefore, it's not the category, but the type of good or service to be purchased within the selected category that is important for a successful RFP process start.
To be able to determine a suitable product (good or service or both) three dimensions have to be considered: contact intensity, customization and output.
Somehow every department has to contact suppliers. Their relationship can be professional, neutral or even become personal. Of course, some services like consulting, temp staff or advertising, need a closer cooperation between supplier and client than others. But when the strategic purchasing team is involved to develop a tender, it is sometimes seen as an intruder trying to destroy a successful relationship by only concentrating on figure-based analysis and making decisions based on economic efficiency.
It may seem as though the current supplier provides a product that is difficult to benchmark or define due to its highly individualized character. But after a closer look, there may be different types and scales of customization that can be distinguished and analyzed. The following services count as customized even though they have standardized parts: branch branding, headquarters maintenance, promotional gifts or advertising.
The more tangible the output is the easier it is to benchmark, as it is possible to touch and measure the purchased item. But what about items that do not already exist and need upstream investments? At the beginning, there might be no tangible output to compare them to. Nevertheless, the product can be defined in accordance to needs and simulated situations. This is also how to purchase purely intangible products like insurance policies.
A study among procurement leaders working for financial companies in Europe and America was made to determine the key characteristics of a product in order to launch a successful RFP. The results are displayed as a cube.
The surprising outcome: mostly a highly customized product is purchased through a RFP.
Why is it more common to purchase highly customized products via an RFP process while the contact intensity has almost no impact?
This can happen for several reasons. Internal clients requesting customization might be more open minded than others. They might also have more information about highly customized products than about standardised products as they are involved in defining the specifications. High starting costs for a customized product — due to benchmarking gaps — might be another reason as they justify a time investment and risk taking in order to achieve the full savings potential.
Information and user commitment are the keys to a successful RFP. Taking the above mentioned statements into account, it seems logical why standardized products are more often negotiated face to face. First of all, the first purchase of a standardized product is mostly done under — real or anticipated real — competition circumstances. This avoids a margin increase by the supplier from the beginning and decreases the savings potential for the following RFP processes. Second, the internal client does not involve himself as much when purchasing a standardized product in comparison to a customized product. He does not care about details as the suppliers or market mostly predetermines it (take paper refills for printers, for example).
In conclusion, information is a key factor for a successful RFP, and based on this knowledge, it might be better to purchase well-defined customized products rather than standardized products with low savings potential, although they might seem simple. So, take the bull by the horns and do the unexpected: start RFP processes for customized products.
About the author: André Kleinhenz
André Kleinhenz is an experienced, entrepreneur-minded purchasing professional. His value-driven, analytical, creative and personalized purchasing strategies have made him into a specialist for motivation-based services. To reach goals, he uses innovative eProcurement, especially eAuctions, during all stages of the sourcing process. He relishes international projects and intercultural exchange. André also performs studies in addition to his professional tasks.