CPOs: Here is how you can fix your RFP process

A few days ago, I wrote this post. 

Link is here

As you can see, it sparked some interesting conversations among Procurement leaders, even from many I admire. It is uncommon to dismiss a reasonably well-established sourcing process (RFPs), especially when the RFP process is the most well-documented and well-established. And, this clear position was questioned sportingly! 

Before I go into another explanation of my position on RFPs, I want to share a few case studies and facts about RFPs. It is not the first time RFPs have faced criticism, and it will not be the first time someone explores an alternate sourcing approach. Let us take a look at some of the noteworthy examples.

CASE STUDY 1: Air France KLM Cargo - Lean Agile Procurement

I was thoroughly impressed after reading this one! This case study aptly summarizes how innovative procurement practices can significantly accelerate the vendor selection process! 

A.) Business Requirement

Let's start with KLM's challenges. KLM Cargo needed to develop a new critical IT application for cargo truck management. The timeline? Six-month schedule to improve the efficiency and productivity of its door-to-door cargo services. 

The existing KLM team consisted of many contractors from various vendors and wasn't large enough to handle this project. To give you a scale of KLM's existing team, they developed close to 2000 applications (internally developed).

B.) Procurement's Dilemma

A six-month schedule was a formidable challenge. Per Air France's procurement policy, assembling a completely new team would have required Procurement to run an RFP. Even the Procurement team's own admission, it would have taken them months!

So, to break it down, there were 3 procurement problems.

1.) Delivering the new system in a short time frame

2.) Finding a new sourcing process that installed the entire new team to begin this development (and not individual resources) 

3.) Other technical challenges

a.) The new product should integrate smoothly with their current IT architecture landscape

b.) External resource management and internal skills upgrade due to the introduction of a new system

C.) The Traditional RFP approach problem

Frédéric Jacques, Cargo Operations Development Manager at Air France, noted: "We usually end up with offers consisting of 50 to 80 page documents. We tend to choose the best writers."

D.) The Solution

So, getting into the most interesting portion now. Air France opted for a different approach: Lean Agile Procurement (LAP). As per CIPS, LAP has become a new global standard for Strategic sourcing and related complex initiatives, given the unknowns, innovation, and changing demands across companies.

Let's take a look at LAP in detail:

A critical difference I found between RFP and LAP is that RFP is a desktop exercise, with technical and commercial evaluations conducted based on submitted documents. Whereas in LAP, a critical part is the Big workshop with bidders. This is where the team, stakeholders, and vendors meet to discuss creating proposals and contracts and to make collective decisions.

So, I see LAP as one big "Hackathon"- style sourcing activity rather than a closed-process RFP (relatively speaking).

E.) Details of the Process Followed

Step 01: Building a cross-functional team involving all stakeholders (decision makers and most importantly, day-to-day operational team members)

Step 02: Initial Kickoff with 4 pre-selected bidders to explain the new selection process and business requirements. I think it was a one-hour webinar.

Step 03: Two-day selection workshop ("Hackathon style") with vendors and core team members. The vendors brought the core team that would actually work with Air France, the necessary people who would build price proposals and decision makers!

This Hackathon enabled collaboration at the proposal-drafting stage itself. And in my view, this is where this approach wins over RFPs. I see this as a partnership model to develop solutions rather than a pure desktop bidding process. More importantly, it addresses the risks right up front and streamlines difficult negotiations from the start.

Step 04: Start the project only one week after vendor selection, with the team already launched

F.) Results

• 6 weeks! That's all it took from the start of the process to vendor selection and project kickoff. I will leave it to your best estimate on how long the RFP would have taken. I am sure many would still be pushing the business and technical team to write up a detailed business requirement scope document & waiting for sign-offs!

• Within 2 days of the workshop, everybody got a feel for actually working with these companies rather than just reading proposals. A factor that truly determines a multi-year engagement journey.

I am truly, truly impressed! 

And this "Hackathon" styled approach is not isolated. There are similar-styled case studies at other companies. Let us take a look at another example:

CASE STUDY 2: Unilever - "Partner to Win" Program

For many years, each Unilever product group did its own Procurement separately. This siloed approach meant they kept missing opportunities to secure better deals by consolidating purchases! Missing out on economies of scale!

Unilever was ahead of everyone! They launched this program in 2011. Their "Partner to Win" program marked a strategic shift from transactional sourcing to building long-term strategic partnerships focused on collaboration.

Let's look at their unique approach and specific examples!

A.) Proactive Scouting: 

Rather than waiting for innovative suppliers to contact Unilever, Marc Engel (Unilever's procurement leader) created specific initiatives to find new startups. I have drawn my own conclusion of this activity in the "Summing it all up" segment at the end.

B.) From "We know best" to "Open Innovation" - The most impressive aspect: 

Their CPO said, "Ten or fifteen years ago, we probably had the view in R&D that 'we know best.' Now we are trusting our suppliers more". This is a critical mindshift! 

Instead of taking an internal R&D "we know best" approach, consider asking their suppliers and leveraging their expertise more! Unilever quickly realized that by leveraging external partners' expertise, it could bring a valuable innovative approach to its business problems!

The way I see the PTW program is very similar to the Request for Solution (RFS) approach. Writing a detailed scope of work document (extremely prescriptive) is often quite restrictive (as one can not factor in all the external innovations). The suppliers are experts in their field, so it makes much more sense to let them design the solution to your business problem rather than respond to a pre-specified scope of work/checklist.

In fact, I found multiple examples where big corporations opted for the LAP methodology instead of the RFP approach. 

• Swiss Casinos - ERP system in 4 weeks. Business case to proof-of-concept delivered, including a signed contract, in 6 weeks instead of 6 months. 50% less effort from a resource perspective (4 FTEs to 2 FTEs).

• CKW Group - Intranet solution in weeks

CASE STUDY 3: POCs over RFP: Samsung

A.) Samsung

Samsung engages with suppliers in competitive dialogues to discuss how they want to implement new technology in their devices. This helps them to upscale their device specification and maintain industry standards! This has a direct impact on their supply chain and quality!

B.) Coca-Cola, Mars, Siemens

These companies use POC approaches for Spot Buys instead of RFP.

Honest Take on RFP

Now that we have gone over some case studies, here are some details behind my strong (black and white) opinion on RFPs.

The RFP process is over 50-60 years old, and it wasn't designed for innovation or speed to market. 

Imagine running an RFP for the next iPhone (let's say iPhone 18 or 19). As a CPO, will you expect your business team to write a detailed scope of work document that lists down BOQ, Specification, and Model of every component? Because you can't start a traditional RFP without a "signed" business scope of work, right?

Now, you will always expect your business team to take a look at the existing specification as a baseline to develop the next iteration, and this is where you install "vendor bias" at the source. 

That's why RFPs favour legacy vendors

1.) Incumbent Advantage: 

Your legacy vendors know more about your internal organization dynamics (existing relationship, into the operational details) than new vendors. So, they know about the actual business requirement better than new vendors. Legacy vendors know how to "game" the system with buzzword compliance, while startups/new vendors struggle with lengthy processes.

2.) Information Overload: 

Most of the procurement professionals skip directly to pricing pages and pay little to no attention to other RFP sections. Each RFP document can be from 50+ pages. So, not everybody will read the proposals from cover to cover.

3.) Cost and Process Barriers: 

70% of suppliers spend over 10 hours per week responding to RFPs, with 32% spending over 25 hours, costing more than USD 250k annually. This high cost (basically a soft cost, but imagine this in terms of resource commitment to support the RFP process), favors big legacy vendors, who have larger teams. Startups do not have the resources to endure your 6-month RFP process.

Common success patterns I found in all the case studies:

1.) Information Transparency: All the companies that I studied in this case study moved away from document-heavy RFPs to real-time data sharing

2.) Long-term partnerships: 3-10+ year partnerships instead of project-based RFPs

3.) Profit Sharing Models: Incentive structures that reward the suppliers and promote the partnership model.

4.) Let the supplier design the solution instead of generating a detailed Bill of Materials styled document internally

5.) Last but probably my biggest learning from this case study. I promised to expand on this point, "Proactive Supplier Scounting".

I think Procurement's job is not to react to RFP requirements or business requirements anymore. Procurement's job doesn't start after a scope of work is handed over to them, so that they can then scout for vendors, make them go through technical and commercial evaluation process. That's not sourcing. That is pure project management.

Procurement's job has evolved to continuously test and develop suppliers capable enough to start the work as soon as the business requirement lands in their inbox. And I see RFIs (Request for Information) playing a major role in this.

Procurement should continuously run RFIs to identify the technically and commercially best suppliers. They should run RFIs to optimize a product specification for the next product improvement cycle and to discover cost optimization opportunities. None of these should wait for a formally signed scope of work document.

I hope this case study was useful to some extent. If you find it interesting, do share your opinions and thoughts. Until next time

Regards

Gaurav

Founder, Supernegotiate