As a management trainee in an export firm, I was expecting to be on the frontlines canting on marketing concepts and market strategies. I was in for a surprise when my manager gave me the apparently mundane task of drawing up an RFP document. Now, an RFP is a 'Request for Proposal'. A seemingly simple name for a fairly innocuous task. I knew about it but was not really expecting it to fall on my plate. Perhaps, seeing my discomfort, my manager said to me,” Good business is always good communication. "
He went on to explain:” You are at the preliminary stage of a business process. Your RFP will determine, how you want to go forward...with what...and with whom. This is where the importance of a good RFP lies. I am sure if you understand how we do our business, you will manage the task. Consider it an education."
After these 'encouraging words', I 'sharpened my pen' and jumped into the assignment.
From my initial groundwork I slowly began to appreciate that a well crafted RFP is an extremely powerful tool in any business arsenal. I realized that the effort I spent now in preparing a solid RFP will later save time, money and frustration. After all, the RFP is the guide for a supplier's contract with us. If the supplier doesn't know what we expect, a long negotiation is a certainty, wasting man-hours.
Knowledge shared being knowledge gained, here's a top down approach to preparing an effective RFP.
The basic question - What is an RFP?
Request for Proposal is a formal document issued by a company when it wants to buy something and thus chooses to make its requirements public. Through the document it establishes the required specifications and invites those companies who can fulfill it. Usually this is a competitive process and several companies bid for the order. The cheapest price can be one of the selective criteria for arriving at the final choice.
In some usage it is also called as a Request for Quotation (RFQ).
Why do we need an RFP?
An RFP is a decision making tool for a business. It allows the business to decide the best source for its material needs. Potential suppliers also come to understand the specific nature of requirements and what exactly is expected of them. RFP's provide a stable set of specifications for suppliers to work on. Typically, an RFP is more than a quotation about price. It includes information on the company, its history, financial information, technical capability, product information and various estimated time schedules.
Here are some preliminary steps to consider before preparing an RFP,
- Measure your requirements.
- An RFP needs to be carefully built around the specific requirements. The correct estimates give the bidders the exact idea of the demand and supply scenarios.
- Define specifically what you need.
- Distinguish between need and wants. Needs are always primary, wants can be optional. Determine the scope of your requirements. Some components may be not essential but would add value if provided (the 'wants', 'nice-to-haves'). You can choose to accept these components if budgets or schedules permit. The supplier also will know what additional value he can provide as a sop.
- Prioritize your needs.
- In any particular situation, a company can have many needs. It is imperative to distinguish between what is vital and what is less so. It helps to rank your needs in order of importance. An order of priority also helps when final comparison between all submitted RFP's is made. Decide how much information you need to make a qualified decision.
- Organize and structure the RFP.
- The information in an RFP needs to be organized. It helps if the information is structured into sections and/or subsections. Functional and technical information can be put under their own respective heads. Decide the contents so that easy comparisons can be made. The motto should be to share as much information as you can with prospective bidders.
- Decide on how to send the RFP
- You may post the RFP on your company website or send it by mail to an accepted list of suppliers.
The Nuts and Bolts of an RFP
There is no standardized format for an RFP. Each RFP has to be tailored to the requirements and designed around the information that is to be shared with the bidders.
Generally, an RFP should contain the following information -
Give a synopsis of your company and the business you do. A short background of the company also helps the bidding companies 'connect' to the company. Mention the reason for the RFP and the objectives you seek to attain. A 'Where we are' and 'Where we want to be' statement can be included. Briefly, touch upon the selection process that would follow.
Purpose and Objectives
Outline the main purpose of your business. Your vision statement helps the suppliers to understand your corporate philosophy. The stated objectives help to establish common ground with suppliers and also communicate the serious intent of your company.
Proposal Guidelines- Requirements
This is the most expansive section of the proposal. Also, this section has to be prepared with strict attention to detail. It is here where the process and the guidelines are laid down. Be as descriptive and detailed as possible. If necessary, categorize your requirements under various heads. Also all requirements should have some measurable criteria.
Address the current environment by giving the technical specification of the present system. Following this, mention the projected requirements which form the basis of the RFP. This is what the bidding company should focus on. Depending on the industry, technical specifications could cover some of the following areas -
- Performance requirements
- Requirements of space or environment.
- Hardware requirements
- Software requirement
- Communication requirements
- Benchmarked critical success factors.
The functional requirements section should list out total resources that would be required for sustaining the objective.
Possible functional requirements include,
- Supply Chain and Delivery Schedules
- Implementation/ installation requirements.
- Manpower requirements
- Training, support and maintenance needs.
- Documentation requirements
The information in this section ensures that suppliers can meet the overall business goals. A supplier may have the technical know how but fail on the service support side. This section thus helps to distinguish between suppliers and their overall capabilities.
This section should detail all the price points. Comprehensive information would enable the suppliers to prepare their price proposal. A useful exercise would be to give a uniform format (e.g., a sample spreadsheet) with all the breakdowns. A common format also helps when price comparisons would need to be made during proposal evaluation. Distinguish between one time costs and recurring costs. Credit terms if any, can be explicitly explained. Pricing is not usually the sole factor for selection but should be used to decide between two suppliers with equally good technical and functional proposals.
Evaluation and Selection Guidelines
As various requirements are confirmed, a general rule for measuring the requirements should also be established. The evaluation criteria can range from the purely technical like price or product demonstration to more subjective ones like previous experience, referrals etc. All the requirements should be evaluated using the agreed upon criteria. The subjective ones can be mulled over through team meetings.
Timeline and Schedules
Clearly identify your timelines and possibly how flexible they can be. The more detailed the proposal, longer should be the response time. Also tell the suppliers how long the evaluation will take and how soon they will have to start the final negotiations.
Contract and Legal Terms
This section can contain information relating to the purchase, non-disclosure agreements, mention of any penalty clauses etc. In short, any clause which is legally binding should be emphasized here. Warranty clauses should also find mention. Include any conditional clauses which may be binding on the final contract. For e.g., the technical system may need to pass certain tests for final approval. This condition can be reiterated here again. Also, include the validity dates for any contract applicable.
Process of Submission
In this section you can outline how the entire process will work from start to finish. Include contact information, submission method and formats (e.g. number of copies), the anticipated selection date.
It may be also helpful to provide a time window for any corrections which suppliers may want to make in their original submissions.
Any information which cannot be included in the main body may be placed here. Specification diagrams, workflow sketches, any statistical information can be outlined.
It helps to provide definitions for difficult to understand terms. We should not assume that the person receiving the proposal would understand everything.
Basically this section gives out any supplementary information which may be too detailed for the main section.
RFP's are the means to an end...not the end itself. Think of it like a map…it says – ‘Here I am, and I am going this way...’ ,the RFP not only tells suppliers where you are going but also selects the road on which they should travel.
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