Request for Proposal (RFP)
A Request for Proposal (RFP), is the primary document that is sent to suppliers that invites them to submit a proposal to provide goods or services. Internally, an RFP can also be referred to as a sourcing project, a document, or an associated event (competitive bidding). Unlike a Request for Information (RFI) or a Request for Quotation (RFQ), an RFP is designed to get suppliers to provide a creative solution to a business problem or issue. RFPs should be used carefully since they can take a lot of time for both the organization and its suppliers. However, for more complex projects, an RFP may be the most effective way to source the goods or services required.
When to Use an RFP
Purchasing personnel should not use an RFP when they are only requesting information from suppliers, want merely pricing information, or only want to engage in a competitive bidding scenario. An RFP does make use of competitive bidding (this is an effective way to source), but an RFP should not be used if cost is the sole or main evaluation criteria. An RFP should be used when a project is sufficiently complex that it warrants a proposal from a supplier. RFPs are helpful when supplier creativity and innovative approaches to problems are needed. It is important to remember that the RFP process can take a significant amount of time to complete and could result in delays to the start of the project. Therefore, it only makes sense to use this when the benefits from obtaining supplier proposals are greater than the extra time it takes to prepare the RFP and to manage the RFP process.
One of the main benefits that can arise if the RFP process is handled well is that the organization will have a good handle on the potential project risks for a complex project. The organization will also understand the prospective benefits that it can realize during the course of the project. Using an RFP also encourages suppliers to submit organized proposals that can be evaluated using a quantifiable methodology. In addition, an RFP lets suppliers know that the situation will be competitive. The competitive bidding scenario is often the best method available for obtaining the best pricing and, if done correctly, the best value. An RFP also gives purchasing personnel and project stakeholders the ability to visualize how the project will go and the approach that the suppliers will use to complete it.
There are several drawbacks to using an RFP. First, they can be extremely time consuming for purchasing personnel. Second, they can be extremely time consuming for suppliers. Some suppliers will look at the RFP and will choose not to participate because it would take them too long to respond. These suppliers may also become discouraged and feel that a low chance of winning precludes them from investing the time required to create the proposal. Third, it can often be very difficult to accurately summarize the requirements for the project. This can lead to poor supplier responses or poor pricing since the supplier did not really know what the organization was looking to purchase. Finally, it can be more difficult to accurately score or assess supplier responses to an RFP since they can be lengthy, detailed, or require specialized knowledge to evaluate.
A well designed Request for Proposal should contain several important elements. Most elements are common for RFPs, but can vary across industries and between the public and private sectors. These include an overview of the business issue, a description of the product or services required, detailed business requirements, other information, proposal format, due date, selection criteria, time line, questions, how to respond and point of contact. Some RFPs will contain information on a cost breakout, approach suggestions, or other documents that may be required. These RFP elements are outlined in the sections below.
An Overview of the Business Issue
There should be a succinct description of the business issue or problem that is driving this particular purchase. It should be stated in one or two paragraphs and should give suppliers a summary of the sourcing project and why it was initiated.
Description of Products or Services
The Request for Proposal should contain a brief but cogent description of the products or services that are needed. In most RFPs, the goods or services that the company needs are complex and may be difficult to describe in detail. Nevertheless, a good description of these goods or services will greatly assist suppliers in developing an excellent and highly targeted proposal.
Detailed Business Requirements
In addition to the description of products or services, with most RFPs there are detailed business requirements that need to be clearly outlined in the document. These can include support requirements, delivery guidelines, design specifications, quality metrics, etc. The purpose of the business requirements section is to give the suppliers details of what is needed by the company for this purchase so that the suppliers can come up with a proposal that meets these requirements. Often times, the requirements section takes up a good portion of the RFP. If the requirements do not accurately reflect the company's needs, suppliers will not present proposals that address the key issues. It is always important to collaborate with the people who are using the products or services for this sourcing project to ensure that the requirements are accurate.
Other Information Needed for Proposal
Sometimes there is additional information that suppliers will need in order to formulate a proposal. This information is usually the information about the organization's internal operations that the proposal writers will need. This information can include usage metrics, demand projections, current performance information, internal survey results, etc. The key for this section is not to provide suppliers with too little or too much information. Rather, it is to provide them only with the information that they need.
For RFPs in which the purchasing personnel know what they require, it may make sense to suggest an approach for the suppliers. Many companies will not have this section because they are looking for creative ways to approach the problem and to not want to force suppliers into a mold.
If applicable, describe some performance metrics that will be used to measure supplier performance of the contract in the future. This will help suppliers get a quantifiable idea of what will constitute excellent performance.
Any RFP needs to specify the format and length of the supplier proposals. A highly structured format for proposals makes it easier to compare the responses from suppliers. It will also encourage clarity and provide focus in the supplier proposals. Some of the best RFPs place their business requirements in a point by point format and encourage suppliers to respond to each point. The RFP should state the maximum length of the proposal. Having a maximum length will help to reduce the time needed to review the proposal and will also ensure that suppliers keep unnecessary information to a minimum.
The due date for the supplier proposals should be clearly stated near the beginning of the RFP and in other relevant places. This makes sure that suppliers know when it is due.
This is an important section and contains essential information for suppliers. This should clearly state the areas and metrics that supplier proposals will be evaluated on. If possible, the RFP should disclose the weighting that a particular section or topic will be given as a part of the overall proposal score. This weighting is often described as a percentage or in terms of points out of a total possible score. This section more than any other, helps suppliers focus their responses on the criteria on which their proposals will be judged.
Supplier may request clarification or ask question about even the most well written RFPs. Any RFP should clearly specify the mechanism by which suppliers can ask questions. Most good RFPs will set a time period during which supplier questions can be submitted. This time period should not be too close to the deadline for the proposal submissions. The contact point for the RFP will then get answers and provide responses in written form to the suppliers. It is generally helpful to display the questions and answers so all suppliers can see them and to make them a part of the RFP as an amendment. This can bring additional clarity to the requirements and provide documentation for the project.
The time line should display the RFP creation date, the RFP send date, the time period for questions, the due date for proposals, the selection period, and the projected award date. This should all be communicated as clearly as possible.
Point of Contact
The point of contact is the person that handles interactions with the suppliers. This means that all supplier questions and comments about the RFP will be directed to this person. Some companies also include a back up point of contact in case the primary point of contact is out of the office or unavailable.
This section is optional and is included in only some proposals. To enable cost comparisons, some RFPs will require that suppliers submit a breakdown of the costs to ensure comparison. It is always a good idea to specify a pricing format in this section to make sure pricing can be accurately compared.
Some RFPs have other documents that need to be filled out as part of the RFP process. These could be diversity certifications, agreements to certain terms and conditions, or other company specific forms. These should also be included with the RFP if they are part of a company's standard procedures.
How to Respond
This will include special instructions on how to respond to the RFP solicitation. This can include information on the address of where to send the proposal. It should include the submission format (hard copy, electronic, etc). It should also specify any additional submission requirements and can emphasize the deadline.
If used correctly and in the correct circumstances, an RFP is an excellent tool that purchasing personnel can use to source the best products or services from among several vendor offerings. While the RFP process is more time consuming and takes more effort, it can provide a company with unique insight into the project risk and can help the company determine the best way to move forward with a complex project. Once a company decides to go with an RFP as the sourcing tool, it is important to follow all of the best practices and to write the RFP in a concise and clear manner to ensure that supplier proposals will deliver the best value possible with the most targeted pricing.