PurchTips edition #282

In PurchTips edition #58, I provided a list of “Critical Ingredients for a Good RFP” that covered basic RFP requirements. For strategic purchases, you need to go beyond basics and require these things from suppliers:

• Notices of Intent to Participate. It’s embarrassing to get no responses to an RFP. If no suppliers want to bid on your business, you want to know this as soon as possible so that you can revise your RFP to be more attractive. Require suppliers to complete and return a Notice of Intent to Participate provided in your RFP so you can predict participation.
• Pricing based on both dual source and sole source situations. Dual source awards can be a good risk-reducing strategy. However, some people assume that pricing will be much higher if the business is split. It’s better to confirm than to assume. Require suppliers to submit pricing based on earning 30%, 70%, and 100% of your business and select your supplier(s) based on the ideal cost/risk balance.
• Cost breakdowns. Knowing how direct costs, overhead, and profits comprise suppliers’ prices gives you a negotiating advantage. Your existing suppliers know this and will often withhold cost breakdowns while they have certainty of getting your business. Therefore, require cost breakdowns when they’re still competing for your business. The RFP process is the perfect time to ask for them.
• Cost savings and value creating ideas. Often, specifications and requirements in RFP’s push costs unnecessarily high. In some cases, you want all suppliers to bid on the exact same scope of work for an equitable comparison. However, you can get that standard pricing plus ask for cost savings and value creating ideas to have some profit-boosting options.
• Financial statements. Analyzing suppliers’ “financials” is a critical activity in supplier qualification. Privately-held suppliers often reject requests for theirs. However, just like with cost breakdowns, suppliers are often willing to share more information when they are still competing for your business. Again, the RFP process is the perfect time to ask for or require supplier financials.

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