Category Archives: RFX

Why does everyone look to disqualify when they should be looking to qualify?


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 Disqualified!

Today’s guest post is from William R. Dorn Jr (Bill Dorn), the Vice President of Operations at Source One Management Services, LLC.

In the last year, I’ve been pretty active talking about one of my favourite topics, “What Not To Do” when conducting a strategic sourcing event. I’ve blogged about it on multiple sites, spoken about it on several guest podcasts, have a chapter in our book about it, and Joe Payne and I even lightly discussed the topic on a morning television news show in Arizona (which I doubt more than five people tuned in for). So when the good doctor told me he was inviting guest rants this month, I knew what I was going to scribble about. But then, I started to think about it a bit more. I think I’ve said enough on the topic, and I think there is an even more basic premise that deserves attention. That premise is: Why do people in business look to disqualify something when then should be looking to qualify it?

I’m sure we’ve all heard the following lines come out of our colleague’s mouths before: “We did that before it didn’t work“, “It’s always worked until now; why would we change it“, “Our staff doesn’t adapt well to change“, “Let’s just push this through for now and look at the alternatives another time“, “it wouldn’t work here“, “we’re not ready for that“, “it’s not really practical here“, “we don’t have the time“, “it costs too much“, “it’s not in this year’s budget“, “we’re too busy“, or the one I hate most “our company (or our requirements) is different“.

As consultants, there really is not a day that goes by that we don’t here at least one of these classic lines from one of our clients. As procurement or supply chain professionals, you probably have all heard one of those dreaded deal breakers right when you thought you had a really creative solution, technology, or vendor that could have helped your business.

But, did you realize that a large portion of you are doing exactly the same thing during your sourcing process? You probably aren’t aware you are doing it, as it’s not as direct as the examples above. And in many cases, it’s really not your fault; you’re just following a procedure, policy or e-sourcing software template that was written in stone before your time. What I’m talking about is a sourcing process that looks to disqualify instead of qualify.

Let’s really look at your sourcing process, whether it’s the Supplier Discovery, RFI/RFQ/RFX/Reverse Auction, or whatever you call it. Does it have questions that really serve any purpose other than to disqualify? Why are those questions included? Chances are, they are simply there to help take a long list of potential suppliers down to a really short list, in order to make the review, selection and award process easier and quicker. Well, we all know that easier and quicker is not always better, but this often gets ignored when it comes to doing work. Here are just some examples of what I’m referring to:

  • Is your company ISO certified? Questions like these (the hard YES/NO), especially used in conjunction with automated rating and scorecarding tools in e-sourcing systems are a huge pet peeve of mine. First off, is the ISO certification even relevant to what’s being sourced? In most cases, it’s not. Secondly, it leaves no margin for answer. What if you are going through the process but will not be certified until next month? What if you are not ISO certified, but are certified by a similar industry specific association, like QS? “Well, we didn’t ask that. You’re disqualified.”
  • We recently responded to a large RFP that had a short deadline. One of the requirements of the RFP was that the response was received electronically and in hard copy, no later than 2:00 PM on a certain date. The company we responded to acknowledged receipt of the submission, but FedEx was actually late in delivery of the hard copy, 2:37 PM to be precise. The prospect promptly rejected the delivery and entirely disqualified us from the bid, even though they already held the electronic copy. They never even opened the bid. We’re not the only ones either; I talked to others who responded that had the same thing happen, all because of a storm that delayed FedEx by a few minutes. In this case, a ridiculous policy had a company throwing away potentially the best possible suppliers without even reviewing their submissions. In other words, “Oh, you’re human and a small mistake happened? You’re disqualified.”
  • We frequently see RFPs that have a “deadline” for submitting questions. Many of those companies refuse to answer any new question you may have after that deadline date. What does that lead to? Well, it forces suppliers to guess at what they THINK you may need, often missing the mark and often submitting a proposal that doesn’t really address the buyer’s needs appropriately. It’s not that they couldn’t support your need; they just simply misinterpreted your requirements and did not have a fair opportunity to present a proper solution. “You couldn’t read our minds, You’re disqualified.”
  • Do you have on office within 25 miles of our location? Well, no, we don’t but the work is being done remotely, so that should not have any impact on our level of service or price … “Too bad, You’re disqualified.”
  • Here’s a 43 page RFP where every answer is a long-form answer and half of the questions don’t apply to this initiative. You have until Friday at 5 to answer it. “That’s not enough time? You’re disqualified.”
  • You must agree upfront that you will use my procure-to-pay punch-out catalog ordering system. Oh, and the software company that runs it gets a piece of every single transaction. But I still want the best possible price. You want more information or are concerned about digging into your margins? “I don’t understand why you could give me a better price if you didn’t have to pay an intermediary too. You’re disqualified.”
  • We’ve got this great opportunity to ask questions for you. We call it a bidder’s conference. You’ll sit around a table with your competitors and must introduce yourself so that everyone knows who they are competing with. “What do you mean you are uncomfortable doing that? That’s what I want. You’re disqualified.” (This is providing that they don’t drop out themselves as most suppliers do after they have to sit through a circus like a bidder’s conference).
  • “Do you have substantial experience supplying the nano-microorganism plating industry? Provide me with 5 references. You sell office supplies? I don’t see how that is relevant to the question. Do you supply other nano-microorganism plating companies or not? No? You’re disqualified.”

I could go on and on with dozens of examples of poorly written questions or poor methodologies that serve absolutely no purpose other than to disqualify, but I’m already over the doctor’s budgeted word count (I hope he doesn’t disqualify my post for it).*

Now, I’m not saying that some questions and some responses shouldn’t be grounds for immediate dismissal, and I understand that you have to find an appropriate balance of how many suppliers you can review for a spend category, but sourcing and procurement folks really should take a hard look at their processes and really look at themselves to see if they are just as guilty as the naysayers throwing around clichéd business brush-offs like the ones I wrote about above. Are you really offering a warm invitation to suppliers to help improve your business, or are you just schlepping through a dreaded process just to tell your bosses that you “went to market”?

Thanks, Bill! You’re really helping me with my point that many RFX processes are not implemented correctly, especially in technology acquisition at large companies!

*To be precise, Bill is over my suggested word count, which I’m happy to ignore as long as the rant is raving and engaging!

Bravo to CPO Agenda for Pointing Out That Charging Suppliers to Bid is a Really Bad Idea!

As I’ve told everyone who has ever asked, charging suppliers to bid is a really bad idea. Not only does it generate ill-will, but as this recent article over on the CPO Agenda that gave “tips for understanding why charging suppliers to tender is a bad idea” noted, it could even be illegal. But let’s take the tips one-by-one because it seems that this practice, which started rearing its ugly head at the start of the recession, is still trying to push through.

  • It is Counter-Productive
    It reduces the expressions of interest from time-wasters and quality suppliers alike. This is what goes through the head of a serious bidder with a quality product: “I know my product is quality, and so do my happy customers, so why should I pay $1,000 just for the opportunity to submit a bid? I’m not even guaranteed my product will be evaluated. I’m going to bid on these four other RFxs instead.” So, what you’ll end up with is a set of suppliers who are desparate for your business. But why are they desperate? Maybe their sales team can’t sell worth a damn, or, maybe (and the doctor leans this way) their products just aren’t as good as their competitors, or if they are, they are not able to produce them as cost effectively. Do you really want inferior products or unnecessary premiums for quality?
  • Suppliers with No-Pay-To-Play Policies are Out
    Not only will you likely knock out most of the quality suppliers in your potential supply base who, while quite willing to bear the costs of providing you with product samples, etc, are not willing to pay just to bid, but you will definitely knock out any supplier with a no-pay-to-play policy that prohibits them from bidding on any contract that requires a bid fee. These could be the best suppliers in the world.
  • There’s no Rationale for it
    The logic is that it takes time to collect, verify, and analyze a bid, and while this is true, with modern e-RFx / e-Auction software, you can collect, verify the completeness of, and compare a bid to a benchmark in less than a second. You will likely only need to analyze the Top 5, accoring to your weighted metric, in detail at the end of the day. And, since you can now buy unlimited use of these systems for less than what a single project used to cost, it doesn’t cost any more to collect fifteen bids than five bids.
  • It is Unethical
    There is way too much opportunity for corruption or the perception of favouritism. (In simple terms, you are sending this message: We value suppliers who bribe us for our business.) Plus, there is always a chance that this restriction could be illegal, in breach of fair competitive practices, or public procurement law. Oops! Can you say “class action lawsuit”?
  • It Says Your Company Is An Ass
    Okay, so the original article said it sends a strong message to the supply base you need to connect with that you are actually uncooperative and uninterested in building a relationship that will benefit both parties, but this sums it up nicely. Unless your organization has a monopoly, and can get away with being a self-centered smug corporate ass, just don’t do it.

Managing Indirect Spend: An In-Depth Review, Part I.1

Late last year, Joe Payne and William (Bill) Dorn of Source One released their first book on Managing Indirect Spend (Amazon) which is a culmination of everything they have learned while doing nothing but Strategic Sourcing since 1992 — before it was cool. Clocking in at 422 pages, this is an incredible resource for anyone who wants to get a handle on indirect spend, which has increased significantly since outsourcing and right-sizing rose to fame in the 1990s.

This book, which should be on the desk of everyone looking to get a handle on indirect spend, is loaded with so much information that there’s no way SI could do it justice in just a post or two — so it’s not going to even try. Just like the book is broken down into four parts, our review, over the next few weeks, will be broken down into four parts — and then into sub-parts where there is just too much to comment in with a single post.

Today we’re going to review the first part of Part One – The Process, and, specifically, the chapters that cover the first three parts of their six part process, namely:

  • Data Collection & Spend Analysis
  • Research
  • The RFx Process

We’re all familiar with the basic process, and if you are a regular reader who has downloaded the free e-book, no registration required, Spend Visibility: An Implementation Guide, then you are very familiar with the data collection and spend analysis process. However, the chapter still makes some good points that need to be reiterated, particularly in regards to building sponsorship and understanding the category. Lack of sponsorship will kill your project faster than a minnow can swim a dipper, and to get it you need the end user’s support as well as senior management. As Joe and Bill state, this will require sitting down with the users and letting them know that they are not being singled out by your spend project, that your project’s success depends on them and is their success as well, and that your project is designed to tie to their objectives (as it should be). In addition, the following is a great checklist of information you will have to review with your users before starting a serious sourcing project on the category:

  • business relationship (with current suppliers)
  • product or service utilization specifics
  • location impact
  • financial implications
  • contractual obligations
  • reports, requirements and actual utilization
  • service requirements and expectations
  • supplier ranking

Joe and Bill also provide some great advice on how to handle the three different types of responses that you will encounter when requesting data from incumbent suppliers — acceptance, avoidance, and pushback — and questions to consider during supplier interviews.

Moving on to the research phase, they provide a breakdown of the eight (8) elements that need to be researched during any sourcing initiative (that you want to be lucky) as well as some great tips for collecting market intelligence through the RFI process. While modern tools, including Source One’s own WhyAbe, make the creation of RFIs drop-dead simple, getting responses and, in particular, the responses you want can be challenging for a variety of reasons. Suppliers might not think you’re serious, might not want to expose what they consider to be sensitive data, or might not be comfortable with the tool. A carefully constructed process has to be put in place, followed, and sometimes augmented by other approaches for the research phase to be truly successful. Joe and Bill lay out their advice, garnered from almost twenty years of experience dedicated to sourcing projects, in detail and offer a blueprint for your success.

Then they jump into the full RFX process, which might consist of an RFP and / or an RFQ/RFB and dive into the typical elements of a good RFP and RFQ as well as the evaluation process that should be followed and the response that should be provided if you want your suppliers to participate in the process again. One point that they make that most other resources miss is the need to include disclosure and liability sections in the RFx document. This is critically important when inviting new, unknown, suppliers to an open event. If these suppliers aren’t awarded the business, they may sue you on the premise that the invitation for bid was in fact an invitation to do business and that the RFx constituted an MOU to be replaced by a future PO or contract once the information was provided. Slimy and shady to say the least, but this has happened. They also discuss the reverse auction process and when it is preferable to an RFX. Finally, they end their discussion of the first half of the sourcing process with a discussion around the need for flexibility and creativity in the sourcing process, a discussion that’s often overlooked. Significant savings are never found by doing the same-old, same-old or just applying one or two sourcing technologies. They are found when the parties come to the table, broaden their horizons, and look for new, creative, and innovative ways to meet organizational needs. And, as Bill and Joe state, suppliers are often much more motivated and engaged when buyers take an alternative approach. So be flexible — and stay tuned. Part I.2 is coming!

Six Secrets of Successful Freight Tenders

A recent article over on Canadian Transportation and Logistics on “the five secrets of successful freight tenders” had some really great tips for getting the best bang for your buck that makes the article a must read. However, it missed one very important tip, which is probably why it claims that Freight RFPs are analytically challenging. (This used to be true, but it’s not anymore. If it’s still true in your organization, then your organization is stuck in the middle ages and it’s time to at least step up to the industrial age.)

Before we get to the tip it missed, let’s start with the tips it provided because at least one of these is overlooked on many a project.

  • Sell your freight.
    Provide as much information as possible about your freight requirements. For each product, include transport, storage, volume, and frequency requirements. The more accurate and complete the RFx, the better quote the carrier can give you. Without detailed information, carriers will build in a “risk premium” so they don’t end up with “bad freight” and both parties lose.
  • Provide enough time.
    Without enough time to analyze your requirements and consider the fit, you’ll get a rough bid that won’t be the carrier’s best proposal. Remember that, depending on the time of year, it will likely sit on someone’s desk for a week, then in pricing for another week, before someone gets to it in the third week. If detailed analysis is required by the “number cruncher”, it could take a month to get the best bid.
  • Standardize the accessorial program.
    Variety and complexity of programs can make the analysis of bid responses unnecessarily complex, as you will be trying to compare apples to oranges to potatoes. And while maybe you can force fit compare the first two, the third poses quite a challenge. Create one program with one uniform set of charges that applies to all carriers.
  • Fully analyze rate proposals across the board.
    Typically carriers will give you aggressive discounts on major lanes to lure your business, but keep discounts to minor lanes minimal, or non-existent. As a result, you may pay more for freight overall if you end up shipping more on secondary lanes.
  • Benchmark results
    Freight patterns can change, and the net result is that a new freight schedule expected to save you money costs you more in the end. “Shadow rate” your current shipments using at least your last rates (if not your last two rates) to get a feel for what freight profiles give you the best deal overall.

But most importantly:

  • Use a sourcing package that can handle freight optimization and multi-level freight bids.
    A good strategic sourcing decision optimization platform (as provided by Algorhythm, BravoSolution, CombineNet, Emptoris, Iasta, or Trade Extensions) will not only allow for full analysis of the entire freight bid, but allow for the easy import of multi-level freight bids from excel spreadsheets. More specifically, these modern packages allow a carrier to define (inter)national rates by weight, volume, or distance, and then override these by region, and then by lane. This will allow a carrier to quickly define standard bids for low-volume lanes or lanes that they are not interested in and focus in on the lanes that fit their network and that they want to aggressively bid on. A carrier can bid on a 10,000 lane global sourcing project in a couple of hours. This decreases response time and increases bid quality.

The Control Provided by e-Sourcing is Only an Illusion – YOU HAVE NO CONTROL!

A recent post on one of the lesser known sourcing blogs indicated that, due to the lack of economic upturn in most of the developed world, maybe now is the time to finally try reverse auctions. The rationale, quotes from a CEO and his team that watched their first reverse auction that indicated that it was simple, powerful, easy to follow, effective, and, most importantly, if you read between the lines, gave them an illusion of control over the process and the results.

This, and some of the messaging coming from a few of the smaller e-Sourcing providers, is scaring me. I fear that adopters may believe that adopting this technology may give them some control. Well, as this recent article over on Chief Executive on why you should “embrace tomorrow’s strategies” clearly points out, you have NO control! You can manage the process, but you have no control over the outcomes. Why? For starters

  • Cartels, cabals, speculators, organized crime, and entire countries are constantly manipulating commodity prices.
    Case in point: China possesses over 90% of many of the rare earth metals used in many technologies (smart phones, batteries, etc.) and when they recently reduced exports, a steep price increase resulted that triggered a costly disruption of delivery of the precious commodities to global business.
  • Disasters are on the rise.
    Industrial, agricultural, and political disasters are increasing in frequency and wiping out production in entire regions. For example, the nuclear meltdown in Japan affected most businesses that rely on a Japanese supplier.
  • Global currency fluctuations, unforeseen credit crises, and economic stagnation are increasingly severe and unpredictably enduring.
    The extreme fluidity in the valuation of imported and exported goods, services, and components is as equally difficult to predict and manage.

No e-RFX or Auction is going to help you regain control over these economic nightmares that you have to deal with on a daily basis. And any provider that’s trying to sell you 1999 e-Sourcing technology to deal with the current economic stagnation doesn’t have a clue. There’s only one way you can even hope to adapt to the constantly changing reality, and that is through the adoption of a supply management platform with advanced data analytics capability. You have to constantly monitor, react, adapt, predict, plan for what-if, monitor, react, and adapt again. This requires extensive data acquisition, mapping, transformation, and analysis that only a real analytics solution, with advanced (spend) analysis, optimization, simulation, and reporting is going to provide. Don’t get fooled. All auction platforms give you in this day in age is a false sense of security. Sometimes an auction is the right way to go, but, most of the time, an auction (on its own), is not the answer.