Turning a profit in any business is difficult these days. You work hard to drive sales, deliver your product, and keep the customer happy. So why should you give up part of your revenue or profit?
Early in my career I realized that I was giving away a lot my profit because I was being lazy and didn’t even know it. I worked with the sales rep from Cisco and was spending over $1 million a year on their product. The sales rep was always friendly, supportive and willing to help with any problem that I had. He even regularly worked to help identify new ways that I could use the Cisco hardware at the high discount of 40% off list price which was much better than his other customers.
A wise mentor suggested that I should consider issuing a request for proposal (RFP) for the next large purchase and we did. We issued the RFP to three hardware vendors leveraging each vendors top business partners. Cisco still won the business from us but at a nice discount of 60+% off list price. I had been giving money away to Cisco when they were willing to lower their price. Ouch!
Since that day I’ve learned to issue an RFP for all large purchases and came away with these key points each time.
1. Identify the top vendors you want to respond to the RFP. Do your research and identify the best vendors and their partners. Create a short list of companies to receive the RFP. These companies already know each other well and they will respond more aggressively when they realize who they are competing against.
2. Provide a great description of your business to the vendor. The more information you can provide to the bidder about your business, the better they can respond. The bidder needs to know who you are, how you deliver your services, and why you operate the way you do. This allows them to create a solution that best fits your needs instead of delivering a boiler plate response.
3. Pick the best evaluation team. Carefully choose the internal team you want to both write the RFP and then evaluate your vendor. Failure to pick the best team will cost you money. If you have an inexperienced team, then consider hiring a company to write your first RFP.
4. Outline a clear set of requirements. Spend a significant amount of time outlining the specific requirements for the product or service you are looking for. For a small RFP, create a clear list of the requirements. For a large RFP, separate major functions into different sections or lots so that you can pick and choose vendors from each major functional area. List out the end results you expect and how you plan to measure the success of those items. This will help the vendor and help you to evaluate the responses.
5. Outline the financial requirements for the purchase. Every finance or procurement team (or maybe it is just you) will have specific items they want to see delivered by the bidder. Create a spreadsheet defining how you want to see the pricing and terms. This will ensure consistency between all the vendors.
6. Define response times for both the vendor and your team. Outline an aggressive but clear schedule that the bidders will be required to follow. Outline for the bidders your response time at each step of the process so that your internal team is clear on their duties.
7. Define your evaluation criteria. Clearly define how you will grade the vendor responses and let the bidders know how they will be evaluated. Then create a scoring matrix to evaluate each requirement based on both objective and subjective measures. Create a weighted measure for each requirement so that you can separate your requirements into the following categories: Must Have, Need to Have, and Nice To Have. You don’t want to pick a vendor based on high scores for the Nice To Have features.
8. Select the top two vendors After you have evaluated and scored all of the responses, choose the top two bidders. This will take you into a negotiation phase where you can achieve another 5%-10% in discounts. Pick one vendor based on price, features, and ongoing support.
9. Clearly communicate with all the vendors. Someone has to win and someone will lose. Clearly communicate with all the vendors and provide feedback to the losing bidders on why they didn’t win. This helps to build a partnership with both the winning and losing bidders. (You never know who might win your next RFP.)
10. Build a partnership with your vendor. You have just started the marathon. The RFP is the starting point for a partnership that may last years to come. Meet with the winning bidder and verify that both teams fully understand the requirements and agree to the long term partnership before you sign the contracts. Don’t deploy the solution until you have completed this step or both teams may be surprised by the end result. Next, meet with the vendor on a quarterly basis to review the performance of both their team and your team.
Congratulations, you are on your way to a successful deployment. Creating a RFP is hard work. If it is done well it will lower your costs and create a strong partnership between both teams.
You will be glad that you finally did it.