One of the most frequently used tools in the procurement professional’s toolbox is the RFP and its cousins, the RFI and RFQ. Requests for proposals, information and quotations, when done correctly, can go a long way towards building relationships with suppliers and capturing savings by ensuring your organization is able to purchase goods and services at competitive rates.
Stakeholders outside the procurement function likely see the RFP process as purely tactical in nature: You specify what you want to buy, you invite three suppliers and you choose the bid that comes in at the lowest price.
But there’s a lot more to it. From knowing when to run an RFP to gathering market insight using RFIs and supplier questionnaires to negotiating terms, procurement professionals know how to use the process to achieve their goals. Those goals depend on the priorities set by the c-suite, but cost savings still ranks high on the list.
These 7 strategies can help you make sure you meet those savings targets:
1. Run an RFP.
Not running an RFP is often the easiest way to go — you simply buy from suppliers you know and like. Good relationships are important but not at the expense of your organization’s best interests. If you’re working from a position of strength and there’s plenty of competition in the market, then your best bet is to explore your options through the RFP process. Not sure if you should run a request? This article can help you out.
2. Seek out more potential suppliers.
Companies come and go, and new suppliers who are ready to work with you may have entered the scene since the last time you checked. The point is to increase true competition, not just to scare the incumbents into bending to your whims, so only invite suppliers with whom you could actually envision doing business.
3. Use the RFP process to consolidate suppliers.
After categorizing and analyzing spend, offer current suppliers the chance to bid on higher volumes. Often, the chance to leverage volume to negotiate a discount can make it worthwhile to run an RFP or RFQ.
4. Ask suppliers if there are more cost effective materials or parts.
Your supplier knows the market inside and out. They might be able to suggest a substitute material that gets the same job done in a more cost effective way. The same can be said for innovation. Look to your suppliers for ways to stay on top of the latest developments — they can help you stay one step ahead of your competitors.
5. Implement reverse auctions and multi-round bidding.
Don’t accept the first set of offers. Use them to narrow down the field and then set up a reverse auction or open up a second round of bidding to increase competition. This approach has to be used carefully and won’t work for all situations. You can read more about these strategies here.
6. Improve communication with internal stakeholders.
Open up lines of communication with your internal stakeholders. Make it clear that you’re on their side. Your job isn’t to clip their wings or swoop in and be a buzzkill; your job is to make sure the business is getting the most bang for its buck. Work to understand their needs. Perhaps specifications can be adjusted or a different approach can be used in order to cut costs without compromising quality.
7. Use an e-sourcing solution to minimize fraud and corruption during the RFP process.
Sourcing software can help you improve your spend visibility by improving the transparency of your sourcing process. E-sourcing can give you the oversight needed to ensure nothing slips through the cracks.
Are you new to the procurement profession or are you an experienced procurement person in need a refresher on RFP best practices?
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