Monday, August 24, 2009

Request for Proposals
Requests for proposals and quotations show suppliers that you’re organized, impartial… and growing.

By Sam Kopytowski

Generally speaking, logisticians at small- to mid-size logistics firms make too little use of standard Requests For Proposals (RFPs) and Requests For Quotations RFQs).

Both are important parts of the logistics buying process, allowing potential suppliers to join the competition to provide a business with goods or services. The issuer makes available the specifications and requirements to several candidates, and then waits for the competitive responses to be submitted.

But while RFPs and RFQs have similar structures, they are used in slightly differently ways.

The objective of RFQs is to set pricing, terms and conditions for a well-defined and quantifiable service or goods. For example, companies may be invited to bid on specific lane transportation services, or the leasing or purchases of equipment.

RFPs, on the other hand, are issued when there is complexity to the business requirement, such as in constraint-based complicated distributions requiring various services or in the total outsourcing of services to a third party. The RFP process is more time consuming, from preparation, through final selection, to the signing of a contract. It should be used for longer term relationships, beginning with a strategy, incorporating a needs assessment, and ending with a deliverable. Effective RFPs reflect long-term business objectives, and provide detailed insight into a business.

Both RFPs and RFQs are excellent methods for leveraging a company’s negotiating ability and purchasing power with suppliers, no matter how large the purchase or size of company issuing them. There are many key benefits to issuing them.

They provide you with a template to fully map out your requirements and specifications, so crucial in the preplanning process. They bring structure to the logistics buying decision. And they generate a healthy “buzz” about you in the industry.

They also let potential candidates know you’re serious, so they’ll provide their best pricing and solutions. Furthermore, it reassures them that you’ve set a structured response analysis and selection procedure demonstrating your impartiality. This is absolutely crucial in today’s business environment for corporate governance and credibility.

There are many templates available out there to develop a proper RFP or RFQ. All should begin with a letter that invites responses and spells out the objectives. You’ll also want to include a statement of confidentiality that needs to be returned by candidates within a specified time.

Make sure there’s no misunderstanding about the process. Instructions for responding to the proposal (including number of copies, who to direct the response to, and the deadline date) should be clearly stated, and the ramifications of missing the deadline should be set out in this section. Typically, all responses are accepted at the discretion of the analysis team.

Once the process is underway, candidate questions should be directed to all participants, with a cut-off date for further questions.

The detailed services requirement – including data or specifications of the equipment – must be part of the information provided. The better the quality of information provided or the more complete the specifications, the better the chances that the proposal will have a proper response.

When it comes to the information you get back from respondents, of course you’ll want things like company history, company financials (including bank references), insurances and guarantees, their business continuance plan, a detailed implementation plan, and references.

One of the most important parts of the process is candidate qualification. RFPs and RFQs should be sent only to companies that can provide the services and equipment required. Find your targets using the Internet, and through discussions with colleagues and your own business network. Remember, if you spread the word, candidates will find you. Have frank discussions with potential suppliers. Candidates will let you know if they’re able to fulfill the requirements, as the effort to respond is very time consuming.

Once the responses are in, it is up to you to analyze them in a consistent manner, to ensure the right outcome.

RFQs are easier to analyze, as they tend to be price- and terms-oriented. A simple Excel spreadsheet will suffice with a matrix of respondents down one side and pricing and terms on the other.

RFPs, on the other hand, are challenging to evaluate. You’ll want to set up the criteria in advance, as part of the process, and then review the services portion separate from pricing. Use a weighted point system to compare the candidate offering against specific service requirement criteria.

When it comes time to review the short-list candidates, invite them to make a presentation to your response analysis team in a boardroom session. A one-hour presentation, with a half hour question-and-answer period, ought to suffice. Limit the number of people from the respondents, typically three. Who attends the meeting is crucial. I know of at least one respondent in a recent session who did not bring the senior operations person. That demonstrated a clear lack of understanding of the requirements.

RFQs and RFPs are an excellent way to acquire the services and equipment that are so important in the logistics process. Large companies use them on an ongoing basis. And small- to mid-size companies can definitely benefit from learning the process.

Sam Kopytowski is the principal at XCD Logistics Solutions Ltd. in Toronto. You can reach him at skopyto@xcdlogistics.com.

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