How Can I Use RFPs to Encourage Supplier Innovation?
Innovation is a popular buzzword these days. Companies like Airbnb and Uber have disrupted markets in ways never before thought possible, causing others to scramble to keep up. Unfortunately, big companies often suffer from silo mentality, or the tendency to isolate individual functions, which limits their ability to share information and common goals. Even when innovation initiatives are put in place, this siloed approach can leave Procurement out of the mix.
When given the chance, Procurement can play a vital role supporting innovation. As the link between internal stakeholders and outside suppliers, Procurement is perfectly placed to encourage and capture supplier innovation.
Benefits of Early Supplier Engagement
If capturing supplier innovation is your goal, then early supplier engagement is a must. All too often, Procurement isn’t brought on board until the design has been set and specifications have been established, and then they’re given the task of purchasing the needed materials.
By involving Procurement in the early stages of product design, they can reach out to the market and get ideas from suppliers while they can still be incorporated in the production process.
According to a survey by the Aberdeen Group, companies that involve suppliers during early stages in the product development cycle have experienced an 18% reduction in total product costs and a 10% to 20% improvement in the time-to-market cycle.
There are also a couple other additional benefits to consider:
- You’ll have more time for a multi-stage RFP process.
Early involvement will give you the time needed to carry out a strategic RFP process, rather than a simple three-bids-and-buy sort of process.
- Small and medium-sized companies will have more time to respond.
One way to support innovation is to consider partnering with startups or SMBs. While there may be more risk involved, you may also reap the benefits of working with an agile company that’s at the forefront of changes in its industry. As a small company, though, they may need more time to do additional research before responding to the RFP or find other companies to bring on as partners in order to meet your requirements.
The RFP in a Different Light: Request for Solution
A formal RFP is a tool. Think of it like a paint brush. You could give a two-year-old the very same paint brush once used by Vincent Van Gogh. He might be using the same tool, but unless you have a toddler with phenomenal fine motor skills and a superb artistic sense, there’s no way you’re going to get Starry Night.
There is no one-size-fits-all template for RFPs. There may be certain things that it’s important to include, but the contents depend on the product or services you’re looking to procure.
When it comes to facilitating supplier innovation through the RFP process, it can help to look at your request in a different light. Instead of requesting a proposal, request a solution.
- An RFP tells suppliers what you need, and they respond with an offer that meets your requirements as closely as possible.
- An RFS, or request for solution, on the other hand, tells suppliers the problem you wish to solve. It’s up to them to come up with a solution.
Here’s an example. Your company builds wooden furniture. You’re looking to hire a company to get rid of the scrap wood you produce. A typical RFP would include the volume of waste you need to remove, how often you need removal services, and so on.
An RFS would focus on describing the problem to be solved. You might say, “We would like to get rid of our scrap wood in a way that aligns with our commitment to the environment. If possible, we would like to see this scrap used in a way that adds value back to our company.”
By framing your needs this way, you open up the door for innovation. Perhaps rather than getting picked up by a recycler, you find a company who’s able to process the wood into briquettes that can then be used for heating your facilities. Now you’re able to put every last piece of wood to good use and cut your energy costs.
Suppliers are experts in their area, and they may have access to the market’s latest developments or ideas for things they would like to try, if they can find the right partner.
Qualitative vs. Quantitative Evaluation
In the previous chapter in this guide, we spoke about RFP evaluation. When performing an apples-to-apples comparison of the bids you’ve received, quantitative evaluation in the form of weighted scoring is useful. If you’re looking to foster supplier innovation, you may not be able to perform an apples-to-apples comparison. Yes, you can rank bids by cost, but if the underlying proposals are vastly different, that ranking will do you little good.
Therefore, it’s important to prioritize other factors in your evaluation process. Does that mean you have to throw out your e-sourcing tool and go back to Excel? Absolutely not. Your tool should have a place for evaluators to write up their comments along with providing a score. When looking for innovative solutions, a qualitative evaluation may be more productive than a quantitative one.
Getting Procurement involved in the early stages of product development or at the beginning of a project is one way to ensure you’re building partnerships and encouraging supplier innovation. If lines of communication are opened up between buyers and suppliers early on, then Procurement can go from fire fighting and cost reduction to truly getting value from suppliers during the RFP process.
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The RFP Process: A Buyer’s Guide to Best Practices
- What role do RFPs play in an effective sourcing strategy?
- What are RFIs and how can they be used for supplier qualification?
- How do I prepare RFPs for services and transportation procurement?
- What can I do to maximize cost savings during the RFQ process?
- How do I manage the RFP evaluation process?
- How can I use RFPs to encourage supplier innovation?
- What’s the best way to negotiate during the RFP process?