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3. What is a Request for Proposal (RFP)? Advantages and disadvantages.
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To make sure you select the supplier that best fits your business’ needs, you need some critical information. But how do you know you have all the details you need or ensure you ask the right questions? It often comes down to issuing the right process - RFI vs RFP.
The choice of which process to use depends on the desired outcome. What do you intend to get? Information, a firm proposal, or a detailed price bid? Let’s see what each process implies.
What is a Request for Information (RFI)?
An RFI (Request for Information) process is the first step to learning more about a company that might be subcontracted to do a job for you. This process filters suppliers who don’t meet requirements or can’t deliver within the given timeline, and it normally follows a format that can be used for comparative purposes.
Therefore, an RFI should include:
A table of contents;
An introduction and the purpose of the RFI;
An explanation of the scope of the RFI;
Abbreviations and terminology used in the RFI document (it’s important to use industry standard terms that are recognizable to suppliers);
A template to complete (this will make your job easier when you will be comparing suppliers);
Details about the next steps - RFP (Request for Proposal) or RFQ (Request for Quota).
The purpose of launching an RFI process is to explore multiple options before settling on one supplier. Also, having an RFI process in place lets suppliers know that the bidding process will be fair. If companies invited to bid do not have a realistic possibility to win, suppliers will recognize it and participation will ultimately decline.
The advantages of RFI (Request for Information)
Taking time to write an RFI may seem like a burden, but in the long run, as a form of damage control, it can save you both time and money. There are several benefits to launching an RFI process:
You get an opportunity to understand the marketplace;
You can find out which suppliers take your business seriously;
You get an overview of competing products;
You can gather product information that will allow you to come up with realistic requirements in your RFP/RFQ;
You get a shortlist of potential vendors that you would like to invite to an RFP or RFQ.
However, there are also disadvantages of launching an RFI process.
The disadvantages of RFI (Request for Information)
A major disadvantage of launching an RFI process is that suppliers might see it as something the potential customer is not very serious about, in which case they will not put too much thought into their response; they might simply send you their standard pricing and brochures (information that you can easily find online anyway) without paying attention to your specific needs.
Another disadvantage would be that the supplier may not send information at all if he doesn’t see real commitment from the buyer. Writing a structured response is both time and money consuming, so it’s understandable that some suppliers might not want to do that in the absence of any obligation. And it’s hard to define what “real commitment” is as it depends from business to business. That’s why some companies prefer to skip the RFI and proceed with an RFP or RFQ.
Launching an RFI also extends the purchasing process because organizations need to factor in the time for review of the RFIs. However, in the absence of an RFI, some suppliers might feel like they are disadvantaged in favor of others.
So if you have plenty of time to gather information, then launching an RFI process before the RFP process is the way to go; otherwise, you can proceed to send the RFP.
Examples of RFI (Request for Information) questions
To make things easier, I will give you a basic structure for an RFI. It should contain:
A statement of need (with goals and objectives);
A confidentiality or non-disclosure agreement;
Some background information about your company (to give suppliers a context);
A list of qualifications (what you are looking for in a supplier, how your ideal supplier looks like);
The information you request (what you need to make a decision);
Your evaluation criteria;
The deadline;
Submission instructions.
Now, having this template in mind, there is a “wrong” way and a “correct” way to ask questions. The “correct” way would be to not ask vague questions but to make them very specific.
For example, instead of asking “What is your accounting process?”, you could break that question into blocks:
“What is your accounting services operating model?”;
“How do you manage tasks?”;
“Who do we call with questions?”, etc.
Other questions could be:
What is an “error” and how do you fix it?;
What collaboration do you expect from your clients?;
How do you manage customer satisfaction? How do you figure out service level agreements?.
What is a Request for Proposal (RFP)
An RFP (Request for Proposal) is a document used to obtain comprehensive proposals from interested suppliers. It usually follows an initial RFI (that includes budget details, a timeline, and a thorough description of the project scope) and its purpose is to enable suppliers to demonstrate their skills, experience, and knowledge.
An RFP is used where the request demands technical expertise or where the product or service being requested does not yet exist. The proposal may require research and development to create whatever is being requested.
The RFP document should include:
A table of contents;
A confidentiality or non-disclosure agreement;
Basic information about the client and the process;
The extent and the scope of the project;
A proposed timeline;
Detailed design information and requirements;
Commercial requirements;
The allocated budget;
Evaluation criteria for suppliers;
Submission instructions.
Thorough preparation of the RFP is important as the time spent at this stage will ensure good responses. Often, businesses also organize preliminary information meetings to brief suppliers and answer any questions.
The advantages of RFP (Request for Proposal)
There are several reasons you will want to launch an RFP process:
To notify suppliers of your intention to purchase certain products or services;
To get a formal submission from the chosen suppliers to enable proposal comparison;
To show that you have a formal and fair process without favoring a preferred supplier.
However, there are also a few disadvantages.
The disadvantages of RFP (Request for Proposal)
A major drawback of RFPs is that they nix the participation of good vendor prospects who think RFPs are too risky or low-yield.
Another disadvantage is that, although an RFP process greatly reduces the time of attracting suppliers, it can be seen as a system that undermines competition by inviting only a certain number of bidders.
Last but not least, they are also costly, take a while, and create bureaucracy. Still, the benefits surpass the disadvantages.
Examples of RFP (Request for Proposal) questions
While writing an RFP document, you need to be specific; explain the products/services you are looking for. So you should:
Ask for samples/examples, certifications, or references;
Request a comprehensive pricing plan;
Be as in-depth as you need to be.
During an RFP process, you also have the chance to learn how you and your suppliers will work together. Here are a few question examples that will help you reduce risk and save time and money:
How will you approach the implementation of [insert niche/problem/project here]?
What risks to the timeline or budget do you see, based on your understanding of our organization?
What steps can we pursue to control costs and/or limit cost overruns?
What is the difference between RFI and RFP?
Bottom line, an RFI is generally used when you think you know what you want but need more information from the suppliers (and RFI is typically followed by an RFQ, while an RFP is used when you know you have a problem but don’t know how exactly you want to solve it. RFPs tend to be more open than RFIs, allowing suppliers to provide also their own suggestions around how they would design and complete a particular project.
Which one should you choose? RFI or RFP?
Choosing one over the other comes down to being aware of the stage you find yourself into. If you’re just trying to get an overview of suppliers or see if there’s a solution to your pain, then the RFI might be the way to go. If you’re close to purchasing but open to ideas, an RFP is probably the better choice.
Final note
Correctly implementing these processes requires time, dedication, and skills. Else you risk losing time for nothing as you won’t actually end up finding a solution to your problem. So no matter which process you choose, always keep in mind why you are doing this and what is the outcome you expect.
If you're looking to improve your business operations through procurement, then Prokuria sowftware for you.