In our last post, Part 26, we noted that, after covering e-Procurement, Spend Analysis, Supplier Management, and Contract Management, it was finally time for Strategic Sourcing. When it comes to Sourcing, we have to deal with the ORA et labora. The work, and the prayer (that it gets the results we want). But at least when it comes to the prayer, we have three tools at our disposal:
Today we’ll start with the most classic sourcing tool, RFX, where RFX stands for Request for X, where X could be Bid, Information, Proposal, Quote, etc. depending on the depth of response required and the terminology used in the industry and geography the RFX is being issued in. So what is RFX? What must it do? We’ll break down the basics in this post.
This is so fundamental and obvious that you’d think we shouldn’t even need to mention it, but we do. The platform has to support the creation of arbitrary surveys, using all of the standard HTML form elements (check boxes, multi-select, text boxes, etc.), and allow them to be created in sections that can be mandatory or optional, depending upon what the supplier is bidding on, and re-used as needed.
Cost Breakdowns / Should Cost Modelling
In the beginning, back in 1995, man didn’t know that we should use TCO, for savings strive; ERP had the parts; but spreadsheets had the bids; no one new what they was gonna do; but FreeMarkets had the news; they said “let there be web”; there was web; “let there be bids”; there were bids; “let their be portals”‘ there were portals; “oh, let their be SaaS”. And it was great. But unit costs, and even landed costs, weren’t reminiscent of the full costs associated with a buy. And even worse, it didn’t give you any insight into why a product cost what it cost.
When sourcing expensive, or complex products, if you’re trying to understand the cost, it’s not average, or lowest bid, it’s what the product costs to make, plus a fair margin. This is why cost breakdown bidding / should cost modelling capability is key to understand the cost baseline.
Having to setup an RFX from scratch every time is very time consuming and unnecessary if the RFX you need is (almost) the same as an RFX for the last product you sourced in the category. That’s why it’s critical that the platform support templates that can be used to instantiate RFX events and then modified as needed to publish the event. The organization should be able to create as many templates as they want, and even create templates off of templates (adding detail and complexity as categories warrant).
The platform must include basic workflow support, which should be configurable to the needs of the organization and the type of event — single round, double round; sealed envelope, blind; etc. This is especially critical for the public sector which must meet strict requirements in its call for bids in many countries.
The platform must support every buyer’s, and supplier’s, favourite tool, Excel, for RFX completion. Specifically, any supplier, or the buyer on behalf of any supplier, must be able to export the entire RFX to Excel, fill out the Excel spreadsheet, and then upload it into the system. While one may think this is not as critical now that broadband is more ubiquitous, there are many suppliers whose sales people are not very technologically proficient and still not comfortable using modern platforms, being used to bidding in Excel for years (and years).
The platform must support basic report(build)ing capability that will allow a buyer to build the appropriate side-by-side comparison reports as well as custom reports by supplier, product, lot, and so on. Unless the platform supports some basic capability, it will be impossible for a buyer to identify an award.
Once a buyer has identified the award they want to make, the buyer must be able to mark the award, store it, associate custom reports that demonstrate the savings (and costs), create notes as to rationale for the award (especially if it is not the lowest cost award), link to associated documentation, and if the organization has SXM and/or CLM modules (or systems), link to the appropriate supplier records and contract(s) in those systems.
Real Time Management
It should be possible to manage the RFX, and process, as necessary at any time. While this doesn’t require the same “real-time” nature as an e-Auction system might require for a 30 minute auction, it must be possible to pause, and if necessary extend, the RFX at anytime if an issue is discovered, add documentation and details when a supplier question indicates a weakness in the documentation, and even modify the lots if it is discovered that items were overlooked or substitutions can be permitted.
A great RFX solution will integrate with the strategic sourcing decision optimization module, automatically run an unconstrained scenario, highlight the lowest cost award; automatically run a scenario with just the current suppliers, highlight the lowest cost award for an award to the current supply base; and automatically run a min 2/max 3 supplier scenario, with each supplier getting at least 20%, highlight the lowest cost award in a risk mitigation scenario; and then show a side-by-side comparison across those 3 scenarios (or organizational tweaks to these defaults) to help a buyer understand the cost differential between different options so they can optimize price vs. quality vs. risk vs. other factors of interest in an informed fashion.
Sourcing Strategy Enabled Dynamic Workflows
A basic solution should support standard, somewhat configurable, workflows, but those will be rather rigid once the RFP is launched. A more advanced solution will allow the organization to define different sourcing workflows based upon current market conditions (supply vs. demand, current bids, potential supply base, etc.), differentials between first round bids and the prices the organization is currently paying, potential supply base shifts, and so on and, after the first round is complete, shift to a second round RFX, push to an e-Auction, or divert to strategic negotiations with the incumbent (or a new supplier that is significantly more appropriate for the buyer under the current situation), as appropriate. While such functionality may not be capable of being used in the public sector, it’s perfectly fine in the private sector, especially if you tell your bidders up front it will be a multi-round process and, based upon the first round, there may be a second round, or you may go straight to negotiations with the leading supplier(s).
Bill of Materials (BoM)
While not strictly necessary for an RFX to support a multi-level bill of materials, especially since it could be flattened into a lot, if the organization sources direct on a regular basis, then the RFX should support multi-level bill of materials, as well as allow suppliers to bid at any level they want to.
The platform should support multi-currency, multi-language, and be fully localizable to any supplier, including support for auto-translation of documents as required. The platform should even support customized workflows and input screens tailored to the suppliers based upon their region, their requirements, and the workflows that work for them.
A good RFX platform will integrate with market intelligence sources that give you current commodity pricing, average pricing from public sector contracts, average on-line pricing, and/or average GPO savings to help a buyer understand how good, or bad, the quotes are that they are getting.
A modern sourcing platform will also support rules-based automation, and will allow a multi-round event to run on auto-pilot all the way from launch to award recommendation, with the exception of the buyer possibly having to answer a few supplier questions. For example, if the RFX was defined as a 2 round RFX with only the top 5 initial responses going into the 2nd round, if the weightings for the responses are predefined, the system will automate the closure of the first round, launching of the second round, and the identification of the recommended award based upon the sourcing strategy defined (dual-source, 80/20, price vs. non-price factor weightings, etc.)
Of course, this is not a complete list of what an RFX platform might have, or necessarily should have, as systems continue to improve, but a baseline of what they must have to be considered a modern RFX solution.
Onward to the “A” in Part 28.