Monday, October 5, 2009

The Evolving Role of Procurement in Modern Organizations – How Vendors Should Adapt to the RFP Process

We have witnessed historical events, and colossal changes in the last ten years. From the burst of the tech bubble in the late nineties, the tragic events of September 11, two concurrent wars in Afghanistan and Iraq, and finally the meltdown of the financial markets that has led to the recent recession. Probably the contribution of this past decade alone, will keep historians busier than ever documenting and analyzing every single second of its time. How is this relevant to a blog that mainly focuses on the business world? Well, as everything around us is changing, the role of procurement in modern organizations is evolving and changing as well.

The catalyst for that change is the introduction of Sarbanes-Oxley a few years ago, which requires corporate officers to be responsible and accountable for establishing adequate internal control structures and procedures for financial reporting. Naturally, the procurement role and the decision-making process for allocating public companies funds have become more visible and tangible.

Companies now need to go through a more rigorous procurement processes for many reasons. David Hannon, in his article “Is Sarbanes-Oxley a burden or blessing?” referred to four key areas where procurement can help drive compliance as stated by Deborah Wilson, a procurement consultant: (* link to article below)

- Procurement can help by automating the bidding process and creating records of how bids were awarded and to whom

- By documenting approval for purchases, procurement can create a clear audit trail for each transaction

- Implementing tighter controls over processes for valuing assets on the books starts with procurement’s valuing of such assets

- By having documented all spend clearly, procurement can make it much more difficult for post-procurement accounting problems or scandals where expenses are made to look like assets

I like to say that enacting sound procurement practices acts as a layer between direct buyers and sellers – in a way like the sun block cream, it does not prevent you from enjoying the sunshine, but it protects you from UV rays and overexposure.

The evolution of the role of procurement does not only impact the buyers, vendors of services must adapt, as well, to the new dynamics, and change their paradigm for winning business. Now, vendors need to deal with a more rigorous procurement process in order for to sell their services and win business in the new environment.

We have seen, recently, many “new economy” and “think-out-side-the-box” type of organizations, where the founders are the current managers and final decision makers; resort – when procuring services -to go through the RFP process from a procurement lens.

As the procurement role is evolving, vendors’ approach to RFP must evolve as well. The key ingredients of any RFP process revolve around the following four stages:

Before RFP 
This it the time, when the vendor is expecting the RFP to be produced by the Buyer in the near term. The vendor must capitalize on this time by preparing for the RFP, assembling the proper team to manage the RFP, and focusing on the proper opportunities.

Some RFP’s require certain expertise or capabilities that the vendor must acquire as prerequisite for winning the bid. A smart vendor should anticipate his/her deficiencies and invest the time before the RFP in addressing the lack of certain aspects that could hinder its ability to win.

As people make decisions, not organizations, vendors must assemble qualified teams to handle the prospect clients during the process of the RFP. There has to be a balanced team that includes people-persons, who can effectively communicate and “charm” the client, and technical people, who can actually act on the technical requirements of the RFP. So many times we have seen great vendors, assigning their top technical people to manage the RFP to the demise of the entire bid, due to lack of inter-personal and effective communication skills. This is not to suggest that technical people are not effective communicators, but just to stress a point.

Finally, vendors must focus on the proper opportunities. Sometimes the aggressive growth targets, and the desire to win market share cloud the judgment of vendors, and suck them to participate in RFP’s that either cannot be won, or if were won, would offer a lousy ROI. Vendors must understand that the RFP period requires attention and resources that should be invested prudently on the proper opportunities. Therefore, it is imperative for vendors to assess the opportunity before they commit to the RFP, and participate only in the proper opportunities.

RFP Analysis 
Once the vendor’s team decides to enter the bidding process, and receives the RFP documents, it is now the time for due diligence and proper RFP analysis. This stage encompasses learning as much as possible about the client, meeting with key stakeholders, and identifying the true decision makers. In nutshell, the vendor who wins the business is the one who properly assesses the need of the client, and effectively communicates that back to the client.

You can learn about your client by meeting with the stakeholders and decisions makers; furthermore, you can learn about the client from analyzing the data provided, information about their business, and surely from the scope of work included in the RFP itself. However, quite often the information provided raise more questions than answers, and here comes a true differentiator, a vendor that asks the right questions – would know the client much better, and will be able to communicate that back to the client by drafting the better RFP response.

RFP Response 
This should be a very straightforward stage; however, many vendors fail at this stage, because they simply ignore the instructions. They may offer the best service, but do not communicate that as instructed by the client. Vendors must fully comply with the instructions provided (for example, use of certain procurement portal, inclusion of certain documents, etc). Their compliance indicates that they are focused on the client and the client’s needs. Finally, vendors must pay close attention to pricing. This could be straightforward as well, but we have seen many bids come with vague pricing schemes. This would put vendors at extreme disadvantage if there happens to be a strong competitor with clear pricing model.

Simply put, answer the questions as instructed, and say how much this is going to cost.

Post RFP 
Finally, once the RFP process is over, a strategic vendor would run a post-RFP protocol – whether they have won the business or not. This protocol entails debriefing the team and the client (if possible) on the process, and on what went well, and where there is opportunity for improvement. This will help the vendor in developing a proposal knowledge base that will be extremely helpful in winning future bids.

In conclusion, the RFP process is the dating period between vendors and buyers. Everything could be going right, yet, for one issue, or for one stupid mistake, it could be over.

While I attempt to be as generic as possible in my blog, I understand that not all of my above-mentioned comments would be applicable in all cases. Please feel free to share your views and experience with me and with the readers.

* David Hannon Article: “Is Sarbanes-Oxley a burden or blessing?” Purchasing. Thursday, February 3 2005

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