Vendors and suppliers are essential partners to nearly every business. But are yours coming at too high a cost? In the face of rising prices, interest rate hikes and inflation fears, companies are looking for cost-saving strategies to lower operating expenses, including finding new vendors.
We have found the most efficient method for sourcing and evaluating new vendors is through a Request for Proposal (RFP). RFPs provide a structured system with greater control for evaluating differences in capabilities and cost. An RFP allows you to solicit proposals from multiple vendors at once, gives you greater insight into how a vendor plans to address your company’s needs and at what cost, and provides a streamlined mechanism for evaluating and comparing proposals based on the criteria that makes the most sense for your business.
Leveraging an RFP that has been designed with your business in mind has the power to potentially shrink your vendor expenses and reduce operating costs by helping you uncover the most qualified option to meet both your business and economic goals.
How to Leverage an RFP
Changing vendors can have rippling effects across your organization. That’s why it’s important to put an effective RFP process in place with clearly defined goals. Though saving money is a goal, don’t make it the only objective.
When determining your priorities, take a holistic view of what your company needs from cost to capabilities to customer service. Invite key stakeholders and internal customers who will be affected by the change to be part of the conversation.
Assessing your current vendors will help you understand where weaknesses and gaps exist, so you can prioritize what criteria to include in an RFP.
Though it may seem counterintuitive, the goal of an RFP should not be to find the lowest cost proposer, but to identify the best solution at the best price. One of the biggest mistakes we see is trading quality for cost by automatically choosing the lowest priced option.
A lower-cost vendor may be the best solution, but you need to understand the factors behind the price differences before making that determination. Does the vendor have a lower profit margin? Or do they cut corners? Do they offer less service or fewer capabilities? Do they have less expertise or experience? What do their current customers say about their services?
Costs should not be evaluated in a vacuum. It’s important to include the cost to change vendors in your final analysis before selecting a potential proposer. These figures should be weighed alongside a vendor’s qualifications and project strategy and approach to give you the most comprehensive perspective.
With an RFP, you can consider and compare vendor qualifications and cost against your priorities and budget by asking questions related to experience and capabilities, and similar work they’ve done for other companies.
During this process, you will learn about proposers’ experience working with companies and on projects of similar size and scope to your company and your project. Your RFP can also ask how vendors provide an operational competitive advantage over their contemporaries, and about the key personnel that will be dedicated to your company.
This information will help you look beyond price and avoid sacrificing standards and expertise for quick cost reduction.
Compare Strategy & Approach
An RFP allows you to receive a clearly defined strategy from vendors on how they intend to approach your company’s service requirements. Understanding exactly what a vendor plans to provide and by what means they will provide it allows you to assess their capabilities on a deeper level and uncover hidden costs.
- Does the vendor offer all the solutions you need in-house?
- Will work be outsourced at additional fees?
- What are the implementation costs?
- What value-added services will be provided?
- Will you pay for services or products you don’t need?
- Will you pay for a technology you don’t need?
- Or will a lack of technology cost more?
This evaluation will also tell you if and where service or product quality might be compromised and potentially lead to greater expense down the road.
Need Help Developing and Conducting a Successful RFP?
We highly recommend RFPs as an efficient way to make thoughtful decisions to support your cost-saving and operational goals; however, they should be conducted carefully with the proper strategy and tools to ensure the right changes are implemented. Contact me with questions or to learn more about how we can guide you through an RFP process.