14 Alternative Ways to Manage Procurement RFP Process
The Telecom industry said, "Kill the RFP."
"Outdated and inefficient procurement processes for IT products and services cost the global telecoms industry more than US$1 billion every year, according to new research from TM Forum, the industry association driving digital transformation through collaboration. The research found widespread dissatisfaction with the RFP process, which has not evolved with the needs of the industry and is slowing the transition to more efficient and agile ways of working."
In this report, the telecom industry said explicitly: "It's time to kill the RFP." They don't like the process anymore - it is lengthy, rigid, sequential, and counter-productive from the supplier and end-user viewpoint.
You cannot manage agile procurement by RFP.
The RFP is a typical example of the "waterfall" ("anti-agile") process:
- Selecting a supplier while the competitive and technology environment transforms at Lightspeed takes forever.
- The scope of work must be defined upfront and committed to by a supplier despite many risks and deviations in the project realization. That may be why many technology projects fail to stay within the forecasted time and budget (refer to the famous CHAOS reports.)
- It favors "fixed price, fixed scope" contracts, in which most risks and responsibilities shift to the supplier. Generally, the RFP process represents the lowest level of trust in suppliers and discourages strategic cooperation.
From the TM Forum's indictment of the RFP, let's pick one count - a whopping 12-18 months to conclude a complex tender.
The main reason for everyone's frustration with RFP
Are you surprised by such a cycle time? Perhaps not. We witnessed tenders lasting for over 2 years.
Let's take the source-to-contract (S2C) cycle and do the math.
One should add 25-40 weeks more for the business analysis, solution design, integration, testing, and acceptance of the technical solution in scope.
In this waterfall project realization, the business analysis, i.e., the vendor's complete understanding of business requirements, only happens after the contract signature. This may happen a year (!) after the initial decision of end-users to embark on the project, given a completely different market situation.
Altogether, it would take 1-2 years from the formulation of business requirements till the start of value delivery. Is such timing acceptable in the highly volatile and competitive market environment and considering instant technological changes?
We will now suggest 14 working alternatives to the RFP process. Each one has specific conditions and limited areas of application.
Still, the entire toolbox's expert use will help dramatically improve the sourcing cycle time with no procurement benefit trade-off.
RFP Alternative 1: Negotiated RFP (N-RFP)
It is essential to understand that the RFP process has its options. Corporate governance needs to allow procurement to adjust the RFP process to the nature of requirements.
For example, US and Canadian public companies commonly use the N-RFP process. It permits
- to require sealed bids only for fixed-price contracts,
- award contracts based on criteria other than a price (subject to the notification in RFP documentation)
- award contracts with no vendor discussions after the evaluation of proposals (if the RFP informs so)
- not to hold any talks for sealed bids.
Hence, RFPs for simple requirements may follow the light and accelerated process at the discretion of a procurement officer. There's no rule that all RFPs have to be the same, including supplier discussions and negotiation stages.
RFP Alternative 2: Buying channels
Claiming themselves the strategic function, procurement must support the business and deliver value instead of their current mandate of the governance watchdog.
Therefore, they need to establish effective channels for low-value and high-count transactional spending (i.e., tail spend.) The Buyer Portal's modern solution is that end-user requisitions will be routed via fully or semi-automated channels with minimal involvement in procurement resources.
The back office (junior clerical staff) will support the Buyer Portal by maintaining e-catalogs and dispatching requisitions in the Assisted Buying mode.
The outcome of an effective buying channel system is the ability of the best procurement resources (front office) to concentrate on strategic sourcing, which adds most of the value.
RFPs will remain one of the strategic sourcing tools. However, the RFP toolkit will be limited and conscious instead of its current role as the default sourcing method for most new requisitions.
RFP Alternative 3: Single-source suppliers
Bottleneck suppliers of niche products and services may be assigned the single-source status. In some countries, this status could be given to providers of state-regulated commodities, e.g., fossil fuels, electricity, and water.
There's no point in running the RFP for selecting a single-source supplier. Yet, the appropriate governance must be in place to avoid misuse and encourage the search for alternatives.
RFP Alternative 4: Preferred Supplier List (PSL)
PSL is a relatively standard practice for many companies.
Suppliers can get on PSL for each sub-category based on the robust prequalification process. They're evaluated against historical performance, customer references, financial, quality, sustainability, risk, and other criteria. Procurement may opt for the site visit to inspect supplier production, maintenance, and logistical facilities.
Upon successful prequalification, a supplier will negotiate with procurement and sign off the standard T&Cs. Then PSL suppliers become the recommended sources of appropriate goods or services.
PSL could be an effective tool to ensure the adoption of specific strategic standards and solutions mandated by HQ policy-makers.
This method eliminates the need to run endless RFPs but still requires substantial resources to maintain the PSL through regular supplier performance and contract compliance control. PSL "maintenance" should become part of the broader Supplier Relationship Management (SRM) program.
RFP Alternative 5: Framework agreements (FA)
This ultra-effective supplier selection tool is far more complex than its traditional interpretation of a contract template.
FA process starts from the prequalification stage. Upon signing the FA, shortlisted suppliers obtain the right to bid for upcoming pieces of the overall scope. The number of suppliers is capped and cannot be extended during the FA lifetime.
The scope of the agreement is limited in time and volume, whichever runs out first. The frequency of bidding events and the batch size become important levers to manage suppliers, optimize cash flow, and mitigate supply chain risks.
Framework agreements work effectively for commoditized categories.Upon the FA sign-off by shortlisted suppliers, the further source-to-contract cycle comfortably stays within 30 days for each lot.
DPS is similar to Framework Agreements with one crucial difference - new suppliers may join it anytime upon successful prequalification. This tool enables great procurement benefits but is harder to manage due to the extensive and dynamic supply base.
The illustration suggests the differentiation between single-source suppliers, PSL, FA, and DPS. Naturally, the application areas of these sourcing methods don't have a distinctive borderline.
RFP Alternative 6: Reserved or preferential buying contracts
Usually, these sourcing tools are used by public procurement.
According to the social or sustainability agenda, or the local regulations, a state company may set aside some spending for SMEs, minorities, veterans, or other privileged small businesses. This spend can be awarded without a competitive process or some particular restricted procedure.
Private and public companies may exercise preferential buying by allocating extra evaluation points for certain suppliers. This practice eliminates the RFP process but may simplify and accelerate supplier selection.
Reciprocal buying
If corporate governance permits, reciprocal buying can be a subset of preferential one. It assumes specific commercial commitments from top suppliers to acquire the products or services of your company.
This works particularly well if your company provides commoditized services, i.e., mobile communication, travel, or insurance. Obviously, it is harder for a producer of nuclear reactors to engage in reciprocal buying.
Some companies explicitly forbid reciprocal buying, e.g., IBM:
"4.2.1 Avoiding reciprocal dealing.
Seeking reciprocity is contrary to IBM policy and may also be unlawful. You should not tell a prospective supplier that your decision to buy its goods or services is conditioned on the supplier's agreement to buy IBM products or services.
This does not mean that an IBM client cannot be an IBM supplier or that IBM can never consider its other relationships with the supplier when evaluating the supplier. It simply means that IBM's decision to buy goods and services from a supplier must be made
independently from that supplier's decision to buy IBM products and services."
RFP Alternative 7: Agile supplier selection
We didn't call this process the RFP intentionally, as "agile RFP" is an oxymoron.
FAR part 15.203 provides the following definition: "Requests for proposals (RFPs) are used in negotiated acquisitions to communicate Government requirements to prospective contractors and to solicit proposals."
So, the RFP process talks about the precise scope of requirements and respective contract commitments. Agile projects don't have a definitive scope; e.g., one of the contract types recommended by FAR is IDIQ - Indefinite Delivery Indefinite Quantity. Agile contracts are not about commitment but the outcome.
Therefore, Agile supplier selection must evaluate the ability of supplier(s) to fulfill business objectives. This could be achieved by assessing the combined skill set of the proposed Scrum team, as well as customer references or POC contests.
The proposed construction of the Agile supplier selection process includes 4 sprints.
- It starts with the preparation of the Statement of Objectives (SOO,) which needs to answer three key questions:
- What's being built?
- Why is it being made?
- Who it's being made for?
- The second sprint defines requirements for suppliers, which will de-risk the project's delivery, i.e., team skillset, customer references, solution design or product concept, etc.
- Prequalified vendors will be shortlisted in the third sprint based on an analysis of their delivery capability evidence.
- In the last sprint, the Pool of Contractors will be allocated work packages, and individual Statements of Work will be signed.
Most capable contractors will be engaged in additional work and high-profile development, while others will only receive routine tasks or are gradually demobilized.
RFP Alternative 8: Pre-commercial procurement (supplier selection for innovation)
This process has been established in EU public procurement. It is called "Pre-commercial procurement" and is intended to source R&D, i.e., innovation.
Here, you can find detailed guidance on the process.
It is similar to the Agile supplier selection process, based on joint business requirement exploration with potential vendors.
The selection of suppliers happens based on the material evidence of their delivery capabilities - solution design, prototype, and then the first test product. Upon acceptance of the results of pre-commercial procurement, a customer embarks on the standard RFP process to select the full-scale delivery partner(s) for the innovation product.
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RFP Alternative 9: Unsolicited proposals (USP)
Another established public procurement method across many countries.
It is applied to considering new and innovative infrastructure proposals. Submissions can be made anytime via the USP intake form. The project size, asset class, delivery model, or type of proposal are not limited.
To qualify for the USP status, a proposal must not constitute a response to an existing, pending, or announced RFP.
The process involves three stages:
Initial proposal.
This submission only includes high-level information about a proposal without a business case or supplemental materials.
Detailed proposal.
In the second evaluation stage, shortlisted bidders submit a detailed business case, after which they are to discuss their proposals.
Procurement and transaction.
Suppose a customer elects to proceed with a proposal based on our detailed evaluation. In that case, they will design a transaction and procurement structure best suited to delivering the project and protecting corporate governance. Usually, any procurement arising through the USP program features competitive tension.
Besides the normal competitive process, the supplier selection could happen as follows:
- The Swiss Challenge: a customer discloses the project details and invites proposals from others interested in executing it. On the receipt of these bids, the original bidder gets an opportunity to match the best bid,
- the bonus system: a foremost proponent receives 5-10% extra evaluation points in the competitive process,
- The best-and-final offer: An original proponent is granted the right to the best and final offer in the second round of the competitive process, even if their offer differs from the most economically advantageous.
The unsuccessful original proponent is reimbursed by the successful bidder for the project documentation and business case development. This cost is stipulated in the actual USP.
RFP Alternative 10: Joint procurement
"Service providers are increasingly entering into network sharing arrangements and joint procurement agreements, which may reduce their investments and the number of networks available for us to service.
Furthermore, procurement organizations of certain large service providers sell consulting services to enhance the negotiating position of small operators with their vendors. As a result of these trends and the intense competition in the industry, we may be required to agree to increasingly less favorable terms to remain competitive."
This post presents a variety of operating models for joint procurement. Partners can apply the Lead Buyer RFP method to the simplest collaboration model- coordination.
This method assumes a sufficient level of trust between joint procurement partners, i.e., that they recognize each other's governance processes for the synchronized supplier award.
In the last decade, such practice has become a new normal for global telecom operators, e.g., Deutsche Telekom and France Telecom, Telefonica, and China Unicom. Other prominent examples include the procurement partnership between Renault and Nissan and Air France and KLM.
RFP Alternative 11: Sourcing advisory and execution by global procurement companies
In their most mature development stage, global conglomerates spin off their procurement into a separate business entity—a procurement company.
Such entities, e.g., Vodafone Procurement Company or BuyIn, offer their category and sourcing capabilities to external customers.
The scale of sourcing consultancy deals in the telecom sector has reached the extent that it has become a threat to global vendors' well-being.
Of course, any company may engage various consulting companies for the same purpose, but those cannot offer purchasing volumes similar to procurement companies.
RFP Alternative 12: Best Value Procurement
This method has been explained in a great deal of detail here.
RFP Alternative 13: Early Supplier Involvement (ESI)
ESI resides on a straightforward notion - the earlier a supplier is involved in the product lifecycle, the better. Late design and specification changes are costly.When suppliers are involved early in a project's design phase, ESI enables cost-cutting benefits, makes the project more feasible to manufacture, and ultimately cuts down the lead time between concept and production.
ESI can be combined with the pre-commercial procurement explained above.
RFP Alternative 14: Value-based Procurement
We explained this concept at length in this post.
Conclusion: No obituary to RFP, but it must be applied topically!
Perhaps no one would kill the RFP entirely. It is still valuable to select the best bids and find great suppliers.
However, this tool's application could be topical - consciously selective, scope-sensitive, and blended with other proven effective sourcing methods.
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