What is the risk and cost of using Excel for your RFPs?
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A common issue faced by growing companies or even mature companies is they are still using excel spreadsheets for organizing RFPs... and too often that brings more problems than solutions.
John Hatos, Procurement Manager at Tecom, explained to us: “ We are still using Excel for sending out RFPs And RFQs. Indeed we have several templates and we tried to standardize the process... but the whole thing is so difficult and painful to manage. My team is losing days to put everything together. And almost every time I feel that somebody missed something or is sending the wrong excel file.”
And John isn’t alone in this situation.
If you are in the same situation, we are going to cover for you:
the biggest risks of relying on Excel for this crucial procurement process
the exact steps you can take to assess the risks you are running,
how to determine the implied costs and the opportunity cost of using spreadsheets.
You can use this information to understand the benefits of investing in a sourcing automation solution like Prokuria.
1.What is the problem with using Spreadsheets for RFQs?
Honestly, there is no problem with using Spreadsheets if you have enough resources to keep them up to date, you double-checked everything and everybody using them is perfectly organized and diligent.
But that’s not something actually happening. Instead here is what is really happening:
Information changes often, and you need to manually update the spreadsheets
Changes get overwritten, especially if there are multiple people using the same spreadsheets.
Suppliers or your team forget to add information to the spreadsheets leading to incomplete information.
People are not paying enough attention and delete information, mess up simple copy-paste operations, break formulas.
All these issues lead to an unreliable source of information that causes confusion, risks and for your organization.
So here are the top 3 risks you are exposed if you are still using Excel for your RFs:
Risk #1: Human error and lack of accountability
Using Excel comes with a high risk of human error. It’s so easy to make a mistake that is dangerous. Actually, Forbes wrote an article on this: Microsoft's Excel Might Be The Most Dangerous Software On The Planet or you can read this article published by WIRED: Excel warriors saving the world from spreadsheet disaster
And there is a long list of Procurement Excel spreadsheets horror stories. Here are 3 of them:
$24 million lost due to Excel copy-and-paste error. Due to an employee misaligning the rows in a procurement Excel spreadsheet, Canadian power company Trans Alta lost $24 million. The copy-and-paste error led to bids being aligned with the wrong contracts, wiping out 10% of the company’s profit for the year.
$11 million severance error due to Excel typo. In 2005, Eastman Kodak Co.’s stock tumbled steeply due to an Excel error. In this case, the error was a simple typo: an employee added too many zeros to a severance record, resulting in an $11 million overstatement.
Spending millions on worthless contracts due to Excel reformatting error. In 2008, Barclays Capital prepared an Excel report listing the Lehman Brothers contracts it intended to purchase. Because some rows including contracts that Barclays did not intend to buy were mistakenly hidden instead of being deleted, when the spreadsheet was reformatted as a PDF, the new version included those rows. So Barclays found itself legally committed to making the purchases.
Making matters worse, when employees do make mistakes using Excel, it’s almost impossible to find out who exactly made the mistake.
Risk #2: Poor information security
The most common way teams collaborate using Excel is to email the spreadsheets back and forth. This practice can lead to private information easily landing in the wrong hands.
In addition, there is no user access level differentiation for different information in Excel. Therefore, we start having larger issues: availability of data, creation of multiple spreadsheets and difficulty to trust the data.
Risk #3: Knowledge management/loss of historical data
There is no way not to talk about knowledge and information management in companies. Generally, in medium-sized industries, there is always one person responsible for collecting the data and updating the spreadsheets: “the excel guy”.
This in itself already brings us a big problem of knowledge management. When this employee is not going to work or has to be absent for whatever reason, it is common that no one else can enter the data in the correct way or keep the system “active” as before.
The management gap of the previous topic brings us directly to this: loss of significant historical data. Since the “excel guy” is not there and no one has updated the spreadsheet (or formulas), there may be a relevant loss of valuable information for past and future production analyses.
Risk #4: Wasted Time
Every hour your employees spend working in Excel is an hour they can’t spend working on something that’s of real value to your company … and managing RFPs in Excel is often very time-consuming.
At Tecom, John is explaining how the RFP team used to spend hours poring through Excel spreadsheets just to ensure the information was accurate.
“Excel templates are great starting points, but once you get the responses from suppliers, we would need to go through each category and each question to ensure there is no mess up from all the copy and pasting. The Excel formulas would often get errors. It took a lot of time to reconcile. And actually, I was never fully 100% confident there was no mistake in my file. And it’s even worse if you start receiving responses from suppliers in word documents.”
2. So what is the cost of using SpreadSheets?
Spreadsheets are free to use (Excel or Google sheets), so what cost we are talking about?
The cost of the manual process and not having the right information when you need it.
Here is the step-by-step process to calculate the maturity of your current process and the cost associated with it.
How long does it take to create an RFP?
The first step to assess the maturity of the current process is to understand the time it takes to publish an RFP. In our experience, the average time to publish an RFP is from a few hours for simple RFQs, to days for a strategic RFP. Here we count only the time of actually issuing the RFP not the entire lifecycle from gathering the requirements to analyze the responses.
Once you have all the information necessary to launch your RFP, you need to put in a nice formatted excel template and send it to suppliers.
The process now starts to become worse with the number of suppliers you are inviting. Because manual processes don’t scale and become highly costly at scale, the cost starts to add up.
Let’s take an example and imagine you need to invite 10 suppliers. Then you have:
Gather the contact data for the 10 suppliers
Send 10 invitation emails
Let’s assume you receive on average 3 clarification questions from each supplier, that’s 30 separate email threads that you need to take care
You receive 10 different responses, in 10 different documents that you need to corroborate in a single file. You need to make sure the formulas still work, the copy-paste was done correctly, the formatting is ok, no supplier, ill-intentioned or heedlessly, changed anything on the original file that he was supposed to
Analyze the data and prepare the final report for awarding the RFP
Did you ever calculate what the cost of a single RFQ is?
In our experience, the cost is anywhere from $500 on the low end and $5.000 on the high end for more complex RFPs with a significant number of suppliers.
This includes the cost of all the manual touchpoints including the time of the senior leadership team that is spent on reviewing.
And now don’t stop at calculating the cost of a single RFP. Look at your annual volume and then calculate the total cost for issuing RFPs.
For example, assume that you do 10 RFQs/RFPs per month, that's 120 per year. With an average cost between $500 and $5.000, that is an annual cost of $60,000 to $600.000 per year.
So in this example, it is costing you at least one headcount and can be as high as 10 headcounts.
What about the opportunity cost?
Using spreadsheets for tracking RFQs is not only inefficient but there is also an opportunity cost for its impact on other business processes.
It takes dedicated effort to launch all RFPs, so you might do some of this
issuing RFPs is the only fone for strategic contracts (higher than a certain threshold,
prospecting the market for new suppliers is done only once per year.
usually, you invite only 2-3 suppliers in an RFP
You don’t do any periodic benchmarking exercise
What if each RFQ takes you only let’s say one hour (10 minutes to launch, 30 minutes to manage it during the lifetime and 20 minutes to analyze the responses)?
Here are a couple of question that you might consider:
How many RFQs you will be doing if the cost of running them is insignificant
How often you would invite new suppliers to submit bids,
What are the KPIs you will improve
What reports you will generate for top management and for yourself
Looking for an easy solution for automating sourcing and supplier management?
With Prokuria, you can launch RFPs in 5’, the onboarding time typically takes 1-2 weeks to get up and running and our Customer Success Team will assist with data import and provide training for end-users, making this process even more seamless.
Prokuria helps procurement teams around the world to deliver significant cost and time savings enabling:
Faster and optimal supplier selection through launching all types of sourcing events like RFIs, RFQs, RFPs, Reverse Auction, Dutch Auction, Dynamic Allocation.
Efficient and compliant management of suppliers and contracts lifecycle with tools like supplier relationship management, segmentation, performance reviews, onboarding, scorecards.
Boosting internal collaboration, alignment with stakeholders, and speed of business