As the planning process for many corporate budgets winds down for 2010, organizations are now seeking information from potential vendors to provide them with solutions during the upcoming Fiscal year.
Not unlike many other organizations, our offices here have been hopping with response activities and the diversity of the format, content and direction of requests is amazing and also the source of a great blog post right?
The range of detail in requirements received could be compared in this way to say the retail example of purchasing an automobile. Please follow along as I go down this trail:
- Some of the RFPs only tell you that the “automobile” should have 4 wheels, 4 seats and be able to move at 50 km/h.
- Others go a bit deeper to indicate that the “automobile” should be Italian made, green in color, able to receive Satellite Radio and have a manual shift transmission.
- Then finally, others request specific feature/functions down to the horsepower output of the engine for the “automobile” to be included in the response. Oh and don’t forget to include the cost breakdown of lug nuts to keep the wheels on the “automobile,” paint, fine leather upholstery, tinted UV windows and Pioneer Audio equipment.
Why you might ask am I going through all of this?
It’s quite simple actually. In our example, if I was a dealer of “automobiles” and a consumer came to me with very loose specifications for what they want, I may provide them with a method of transport that isn’t well suited for their actual use.
Plus, the price could be so far out of budget for the customer that I could instantly lose the ability to participate in further negotiation rounds because I either over-engineered the solution because so few specifications were provided or underestimated the actual need due to the lack of specifics. This same experience can be had in any purchasing/negotiation process and is why both as a customer and a respondent to these requests all parties need to mind their Ps and Qs.
For Buyers: More detail indicating exactly what is required along with the actual business need of those requirements should provide you with much improved quality in the RFP responses received from vendors and ideally those improved response qualities will lead to reduced evaluation and negotiation cycles (and hence lower sourcing costs).
For Vendors or Suppliers: Engaging the buyer where possible to best understand their requirements is critical. Use the open Q&A period that accompanies most RFQ/RFP cycles to guide the customer through your questions to provide you with explicit requirements that you may not get from the four-page request that came your way….that one is said a bit tongue-in-cheek as rarely would an RFQ or RFP look like that. We’re more accustomed to the 50-plus page requirements list with a 100- to 150-page response right?
Realistically the bottom line in the open season of negotiations is that a well-defined requirement elicits a well-explained response and thereby should result in a reduced cost of sourcing.
Tags: RFQ/RFP, Sourcing costs