Procurement wouldn’t be procurement without the process of quotes, tenders and negotiations. Or would it?
Surely by now the very notion of procurement managing a vast array of tenders, quote gathering processes and negotiations should be a thing of the past. Granted, high value, high-profile, highly complex tenders will still probably fall under the remit of an organization’s procurement department.
But gathering quotes? This harks back to the old-fashioned notion of ‘purchasing’ rather than procurement. Strategic sourcing or strategic buying should be more concerned with the high-level strategic (see, it’s in the name!) planning and alignment with the core organizational requirements.
After all, wouldn’t you rather see well-trained, qualified and experienced procurement professionals wrestling with Direct and Indirect Sourcing strategies, than the latest round of sub-$10k quotes? Or Category Management plans rather than price increase requests?
The issue for procurement has been, and still is, divesting itself of these transactional activities to free up time and resources for more strategic tasks. That’s not to say that no-one in your procurement team should have experience of these activities. But in this day and age, with the plethora of procurement solutions and procurement consulting options available, it no longer has to be a binary, mutually-exclusive choice.
Time to Ditch the RFP?
The Request for Proposal (RFP), or one of the other ‘Request’ process alternatives - Quote (RFQ); Information (RFI); Bid (RFB) - is one of the mainstays of traditional procurement. However, as the profession modernizes, there is an argument that RFPs are no longer fit for purpose within new procurement strategies.
Good RFPs, the ones that are going to get the best results, take a lot of time and resources to prepare, issue, manage and evaluate. Individual RFPs can take up to 6 months to complete, even longer if you have Government Procurement or EU Procurement Regulations to take into account.
Organizations spend on average 4,800 hours and over $310,000 every year on going to market using RFPs. Using an average working week of 40 hours, that’s the equivalent of 2.3 of your full-time employees spending their whole working year on these. Does that sound efficient to you?
And that’s before you take into consideration that over a quarter of these exercises fail to deliver what is required. Unless you have a highly robust evaluation process, you may end up taking just as long to come to a conclusion (i.e. a successful supplier), particularly when you are struggling to make good, like-for-like comparisons.
On top of this, your suppliers won’t thank you for a seemingly endless stream of RFPs to respond to. Suppliers can spend as much as $100,000 per year responding to RFPs, without any sort of guarantee that they will be successful. With a context like that, it’s no wonder that many suppliers decline to respond unless they know they have a solid chance of winning.
Negotiation – Worth Your Time
The same could be argued for negotiation. There’s no set length of time that a negotiation should take as there are a number of factors to consider: relationship between the parties; value of negotiation; or really understanding what you want.
Time, in the form of deadlines, may even be a tactic employed by the other party. If your supplier knows you need to close a deal quickly, you risk handing over a significant advantage to them. That, and knowing that any deal is most likely to be struck in the final 20% of the negotiation time. There’s even a consideration that spending even a short amount of time on a negotiation might not be worthwhile to your organization in terms of the ultimate pay-back.
A Simple Solution
So when it comes to RFPs and negotiations, what is there for an organization to do? If you have a strong price focus for these tenders in your procurement strategy, you may want to consider procurement consulting in the form of a Group Purchasing Organization (GPO). GPOs, like UNA, are designed to take the time and effort out of RFPs and negotiations.
An individual organization can leverage the strength of a GPO’s network, securing better terms through volume that they wouldn’t otherwise have. Not only that, but many GPOs offer pre-negotiated supplier contracts, providing better discounts, an average of 22% on direct and indirect spend, and greater price stability than the organization could have achieved on its own.
It removes the need for procurement departments to issue RFPs in the first place, puts contracts in place faster and negates the requirement for negotiation. After all, wouldn’t you rather spend that $300,000 this year on something that could really deliver for your organization?
To find out how to spend your organization’s money in a more effective way, contact UNA today.
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