The RFP is one of the most effective tools in the sourcing professional's arsenal. Along with the needs for long-term supplier relationships and revisiting business requirements, injecting competition into your supply base can be quite a balancing act.
It is so much easier to re-negotiate with an incumbent supplier you know and trust, than a new contract manufacturer. But your duty as a sourcing professional obligates you to scan the market for companies that are potentiall better, cheaper, and faster than your incumbents.
Manufacturing a Strategically Efficient RFP Process For Sourcing Professionals
1. Three Year Deals Are Really 2 Year Deals in the Manufacturing World
It can take up to a full year to transition suppliers (strategic relationships -- direct materials) and to get internal customers to buy-in and utilize new agreements (transactional relationships -- indirect spend). Additionally, a well managed strategic sourcing event often takes 3 to 6 months to complete for most mid-size and large companies, from supplier identification to contract implementation.
It is sometimes difficult to realize the full benefits of any new deal until "Year 2" of an agreement because of the steep learning curves often associated with new relationships and implementation lead times (For example, testing & QA, training, tooling, contract compliance, etc.).
I would contend that any new supply agreement shorter than 3 years means the sourcing process was short-changed.
2. RFPs Create Efficient Manufacturing Markets
RFPs create efficient manufacturing markets that otherwise do not exist for unique goods and services. The speed at which business and market dynamics are changing is increasingly rapid, and it is critical to challenge incumbent suppliers to ensure sourcing professionals are getting the best value proposition on the market. And perhaps more importantly, that they are adequately and accurately managing supply chain risk.
In difficult economic climates, more and more suppliers risk going out of business, merging, reducing head count, and/or not investing capital to the detriment of their customers.
Even the best buyer-supplier relationships get stale and dissipate over time.
Sourcing professionals have an obligation to their employers to ensure the best value available is achieved and that there is no substitute for making suppliers compete for business.
Make sure to:
- Re-evaluate business requirements/specifications
- Baseline total cost of ownership
- Identify alternate sourcing strategies/tactics
- Number of suppliers
- Domestic versus global sourcing opportunities
- Fixed versus formula-based or cost plus pricing
- Logistical footprint
- Take a deep dive into market/commodity conditions
- Establish Goals
- Cost reductions
- Supplier performance evaluation
- Continuous improvement
- Time to market
3. Give Your Suppliers of Custom Manufactured Parts a Chance To Succeed
Sourcing professionals really need 3 years to determine whether or not a supplier is worthy of their business. During the RFP process, the focus is really about procuring the goods requested and the obtaining the service on time, at the right price, and at acceptable quality.
Years 2 and 3 are necessary to harvest supplier innovation and to evaluate supplier performance. Conducting an RFP more frequently than every 3 years is more often than not counter-productive, considering the time and resources could be better spent on supplier relationship management and continuous improvement initiatives.
Strategies that have a higher probability of returning a larger ROI for a category recently sourced.
4. However, RFPs Can Be Detrimental to Incumbents ... But You Can Prepare ...
RFPs often have an adverse affect impact on relationships with internal stakeholders and incumbent suppliers as they are disruptive to current business and competing priorities. Telling suppliers to expect an RFP every 3 to 5 years and aligning sourcing priorities with cross-functional objectives brings support and credibility to the RFP process.
(Author: Jeremy Brofford is the packaging procurement manager at Wendy's International. Jeremy has substantial hands on supply chain experience on both the practitioner and consulting sides of the business. DL)