How to simplify RFP’s, shift the negotiation power dynamics, and speed up savings creation.
I dedicate this article to a mentor, Bruce Fryman, who sadly passed away last year. Bruce served in the US Army, and his career spanned top global CPG companies such as Proctor & Gamble, Clorox, Neutrogena, and Colgate-Palmolive.
Background
Like many procurement professionals, I found my way into the profession somewhat by chance, and at the time, there was little formal training available. However, having a passion for markets, I quickly found that challenging the incumbent supply base through evaluating alternatives, I was able to help my company drive reductions in cost. Unfortunately, the buying process was largely self-invented, and actually, the term RFP did not exist at the time.
The competitive “inquiry”
While working at the Australian subsidiary of a global CPG, I had the opportunity to meet Bruce at a regional procurement meeting in Asia. Bruce had recently joined the company’s international procurement team and had responsibility for all Asia-Pacific procurement. I was impressed with Bruce; he was a visionary. Bruce asked me to lead an “inquiry’ for the regional supply of a significant raw material. At the time, I had no idea what an inquiry was and was both excited and nervous about the challenge of being given the opportunity.
The competitive “inquiry” was a procurement process Bruce learned from his career at P&G. I also learned over time, P&G was at the forefront of inventing many aspects of modern procurement we know today.
In my follow-up discussions with Bruce, he asked me to send each industry supplier a letter (the inquiry). The letter had two questions.
1. What is your price to supply the company’s volume (listing out the annual requirements for each included country)
2. What is your available capacity
I was pleasantly amazed at the quoted pricing when the responses came in. Over the ensuing months, we worked together on finalizing a new contract negotiation for the region. From then on, I had a new tool in my developing procurement toolkit, the competitive “inquiry.”
Bringing these learnings into today’s business environment
Each of the subsidiaries, before the inquiry, was managing their one on one supplier negotiations. There was a benefit in rolling up and aggregating the regional volume as one negotiation; however, the power dynamics between the buyer and seller changed. The letter to the supplier shifted the power from more of equal distribution to favor the buyer. The savings results would have been the same if the letter had been a 5 page 50 question RFP.
I favor full-blown RFPs and the criticality of the detail they deliver in the complex world of stability, quality, and supply chain reliability. However, in today’s modern procurement world, we lose sight of fundamental pillars, such as savings, margin improvement; we get caught up in terminology and often overengineer processes.
We may be new to procurement, tremendously busy, or lite-on resources. We can call it an RFP or an Inquiry; the words are less important. The fundamental purpose is to put suppliers on a level playing field and control the negotiation. A few simple questions accomplish this.
I’ll add one more question to Bruce’s competitive inquiry.
What is your price to supply the companies volume (for the given product or service)
How long is your price firm, and what is your proposed price change mechanism
What is your available capacity
You can adjust these three questions to your own companies needs or the specific negotiation. The crucial factors are:
The RFP is a negotiating tool used to control the negotiation. Think of 80% of its heavy-lift in your three questions
The RFP can be split into two parts
Drive your up-front negotiation first (the 80%)
Utilize your cross-functional organizational resources to support you qualify the leading suppliers (the other 4.5 pages of the RFP), e.g., finance, quality, and supply chain teams
Procurement organizations play a crucial role in driving margin improvement and ensuring supply. In an ever more complex operating environment, a successful team will mentor and empower staff, engage cross-functionally and operate with agility.
Graham Leary is the Owner/Founder of James Alistair – a procurement and supply chain consulting firm.