Requirements Identification and Request for Proposal (RFP) Development

Third of five steps for a successful strategic sourcing project

Simultaneous to the development of supplier base for the bidding, Project Managers should also determine the details of the requirements for the spend category being sourced. The company will only get the best prices from the suppliers if they will be able to specify the features (technical, physical, etc) of the goods and services that they intend to buy. This further allows them to level the playing field across suppliers and minimize incidences of under- or overqualified technical and pricing proposals. Thus, the more specific the requirements are, the more comparable and precise the bids would be.

It is advised for any Sourcing Project Manager to come up with a Request for Proposal (or “RFP”) document for each project. The RFP should detail all technical requirements for the spend category based on the scope in the baseline development exercise and additional inputs from other stakeholders for the category. For example, if the company plans to source Temporary Labor, the Project Managers can coordinate with Human Resources for the provision of the list of positions that they wish to contract from a third-party service provider and the corresponding job descriptions, technical qualifications and estimated volume for each position. Or if they intend to open up their Packaging Carton requirements for bidding, they must be able to specific the dimensions, material, strength and other technical specifications of each model. It also allows vendors to manage their pricing proposals if the company would initially inform them about their estimated budget for each sourced item or category.

Moreover, the RFP must also inform any participating supplier about other commercial, quality and service terms that the corporation expects from them to ensure that the proposals received from the vendors have already incorporated the terms that would be soon indicated in the future contracts. For example, if the company will state the expected delivery locations of the goods that will be purchased, suppliers can already estimate the appropriate amount of delivery costs that would have to be imputed to the unit pricing. Or if the company identifies that its preferred payment terms is semi-annually, the vendors will be able to offer pricing that could support their business given the expected schedule of cash inflows. Providing these information allows suppliers to provide their best prices and protects the corporation from any potential issues with the vendor bids or with the execution of the contract with the winning vendor.

Lastly, the RFP must clearly inquire for the qualitative and quantitative (e.g., pricing) components of the supplier’s proposal. This is best captured in a form that suppliers need to fill up. The more detailed and well thought-out this form is, the more sufficient information will be received and the more comparable the proposals could be. Towards the end of the sourcing initiative, the corporation must come up with the awarding decision and to achieve this, they must be able to qualify proposals fairly. The ability to conduct an “apples-to-apples” comparison is largely affected by the availability of comparable response measurement structures in place. Hence, especially for pricing proposals, it is best to already provide the structure that vendors will just have to fill up in order to roll up comparable total costs in the end.

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