Request A Quotation From New Supplier 2n3y36

RfX Process Training RfX definitions & process Bonn, 28. April 2008

RfX stands for a series of tactical processes that allow buyers and sellers to conduct business. The abbreviations stands for „Request for …“ Definition of the RfX process

Demand

RfX internal client

Contract

purchasing professional

Commonly used RfX processes A set of general processes or mechanisms that provide a structured way for buyers and suppliers to interact with each other and conduct business: often the exchange of specific items or services for a specific price, but also the exchange of information, such as capabilities or willingness.

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

     

RfD – Request for Demand RfI – Request for Information RfP – Request for Proposal RfQ – Request for Quotation RfB – Request for Bid Negotiations

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Through clarification and bundling of demand in an organisation, an internal Request for Demand can greatly enhance the value obtained from an RfX Process Definition of the RfD / Request for Demand process

“

!

“

”

internal client

purchasing professional

The RfD aims to understand internal demand & needed requirements and addresses the stakeholders.

Source: BrainNet

?

”



What kind of a laptop?

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Target groups, specifications?

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How many?

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Is there more demand in the company?

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Can demand be bundled or otherwise managed?

BrainNet “Purchasing 101” Training : DRAFT

Page 3

Request for Information (RfI) provide a way to research the supplier market before a binding RfP/RfQ/RfB is issued Definition of RfI

“hmm …” purchasing professional

A Request for Information (RfI) is a way for buyers to gather information about prospective suppliers and the items they can provide. Buyers often use the information gathered by an RfI as input for deg a future sourcing activity, i.e. as an initial stage of a multistage RfX activity. Benefits  identification of interested sellers

Source: BrainNet

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match between products requested and offered

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info about current market trends & history

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typical delivery conditions

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identification of problems with provided product specs

BrainNet “Purchasing 101” Training : DRAFT

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RfI is particularily helpful in case of first-time purchases, where internal know-how is not yet available When to use RfI

“hmm …”



Typically designed as a questionnaire for suppliers to complete



Suppliers generally indicate interest, without entering prices, quantities, or any other specific item .

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However: general information about price ranges can be asked to the business case

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Can be augmented by telephone discussions / personal meetings

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RfI results in no contractual obligation

purchasing professional

When to use RfI?  first-of-a-type purchase 

little information about suppliers



complex products

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product specification perceived as incomplete – internal client without expertise

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 5

Subsequent RfX stages can be seen as quality gates that not only ensure lowest possible price but also quality of the product. Sample supplier screening process First set of criteria:  Company size  Relevant experience  General quality levels  Some suppliers may have a “preferred bidder status” Second set of criteria

First stage filter e.g. RfI

Source: BrainNet

Second stage filter

Final negotiations

e.g. RfP / RfQ / Auction

BrainNet “Purchasing 101” Training : DRAFT

 Price  Non-price issues (organisation, operations / quality, systems, strategic fit)

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RfPs/RfQs are the most widely used RfX processes. Definition of RfP/RfQ

“

“

”

€

purchasing professional

suppliers



Description of the buyer's specific needs.



Request for pricing and delivery proposal.

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Additionally, an extensive questionnaire is used, so that thebuyer can determine the capabilities and flexibility of potential suppliers.

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

”

Proposal collection is typically a sealed process, where participants know very little if anything about other participants and the proposals they submit.

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The RfP and RfQ are often used interchangeably and there is a great confusion in the field as to their definition. There are some subtle differences, though. Differences between RfP and RfQ process Request for Proposal 







Source: BrainNet

Request for Quotation

Best suited for more complex products / services, where price is just one of the factors General structure provided, however suppliers can extend the offer with extras More of a “here’s my problem, give me a solution with price” approach.

RfP vs

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Used for straightforward situations, where price plays the key role

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Product is well known and can be described in detail

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Rigid structure, suppliers merely to provide price with some background information

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Can be a follow-up to an RfP

RfQ

More difficult to compare offers.

BrainNet “Purchasing 101” Training : DRAFT

Page 8

Overview RfP process RfP Criteria Definition  Commercial  Price  Quality  Warranty  Maintenance  Supplier ability  Technical  Specifications  Drawings  Configurations

RfP Generation  Cover letter  Commercial information  Technical information  Additional information  & conditions

RfP Distribution  Supplier notification  RfP distribution  Supplier communication  RfP communication  RfP return

 Response guidelines  Response from

RfP Return  Analytical tool development  Quotes analysis and benchmarking  Best case savings calculation  Non-price criteria evaluation and scoring

 Catalogue

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 9

The RfP Process should be managed as if it were a separate project Hints and tips for the RfP process

 Plan a schedule and stick to it  Schedule adequate time for collection of internal information, i.e. drawings, specifications, and other requirements  Proofread RfP packages before issuing them to suppliers  Schedule adequate time for suppliers to respond to the level of detail required (Be careful not to overcompensate)  Keep a log of pertinent information, eg. date RfP issued, date received, questions asked by suppliers, subsequent answers and how it is communicated to the bidding community Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

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There is no set RFP format, however, there are recommendations on formats that have been successful Introduction

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Overview

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Goals of the RFP Process

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Rules of the RFP

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Request for Proposal Objectives

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Information

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References Request for Proposal Background Information

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Source: BrainNet



Financial Position and Performance

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Primary Markets Served

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Production Facilities

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Procurement Information

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Negotiating Team



Quality Data BrainNet “Purchasing 101” Training : DRAFT

Request for Proposal Background Information (ctd.)

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

Quality Data

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Inventory & Inventory Management

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Cost Reduction Opportunities

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Performance Measurement and Reporting ()

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Request for Proposal Pricing Information 

Pricing

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Future Pricing

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Payment Issues

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Discounts & Rebates

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Suppliers have to be managed during the RfP process Hints and tips for the RfP process 

Alert suppliers as to RfP issuance and expected timeline.

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Target the appropriate senior management at the supplier organization.

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Ensure executive management at supplier is involved if sourcing group spend is significant and complex.

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It may be helpful to distribute the RfP to suppliers (senior and executives) during a Supplier conference explaining the process and expectations.

Source: BrainNet

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Suppliers must comply with the requested format, diversions make it more difficult to evaluate and consume time.

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Once RfP’s are issued, respond back to all suppliers for any questions received. This promotes fairness in the process and minimizes redundant questions.

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Irrelevant questions or areas to be discussed during negotiations should be identified and appropriately differed.

BrainNet “Purchasing 101” Training : DRAFT

Page 12

The supplier orientation meeting / supplier conference is an important step in the process, an opportunity for two-way dialog Directions for organising a supplier conference  Purpose  Convey the total scope of the sourcing project to all suppliers  Get the “Key Messages” out to everyone and ensure understanding  Time saving (no need to repeat the message to each separately)  Attendees  Senior/Executive management of suppliers selected  Sourcing Team + other involved stakeholders  Shows to the suppliers that not Procurement alone but also other departments agree with the objectives and content of the RFP (supplier won’t be able to play them off against each other)  Topics for Discussion  Overall procurement strategy  Sourcing Teams objectives and goals  History of market, category breakdown, cost structure  Review the Request for Proposal  Expectations for completed RFP

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 13

RfP responses can be evaluated quickly and efficiently provided that you enforce reply standards in the RfP Steps in RfP evaluation

 Compile all data in a database  Reveal cost, capacity and capability  Narrow the scope of potential suppliers  Prepare the team for negotiations  Look for new discoveries  Identify areas where suppliers differentiate  Check the results

DESIGN YOUR RFP WITH THE END RESULT IN MIND! If you don’t specify the format for answers / prices, every supplier will do it differently and it will take you weeks to collate the data and compare them! Apart from the proposal in the standard format, request that the suppliers enter the prices in an Excel template you sent them. Failure to comply = Exclusion from RfX

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 14

Several models for RfP Evaluation/Comparison exist RfP evaluation methodologies

 Weighted rating  Arithmetic result  Key differentiators  Stress test (Weight, Rating)

+/x

 Model supplier (Best of Best)  Killer criteria  Key functions/criteria  Threshold values (min/max)

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 15

Request for Bid (RfB) is issued when the buyer decided to use a reverse auction as a primary sourcing method Definition of an RfB

€5

€3

€ purchasing professional

suppliers

 Detailed description of buyer’s needs is presented to the bidding participants (respondents)  Price, quantity, quality (specs), delivery time, starting price  Buyer determines the parameters of the auction

 Suppliers present price offers  Lowest-priced offer usually wins

 Auction type, start price, time, communication tools Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 16

Auctions are most beneficial in case of generic products in competitive environments. Application and benefits of auctions Benefits €5

€3 

Objective decision of contract awarding

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Detailed overview / comparison of prices (including partial price comparisons)

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Market price determination

When to use RfB?  standard / comparable product

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Reduction of price

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relatively large total purchasing amount

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Reduction of cycle time

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Baseline for savings tool

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competitive market

suppliers

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a number of alternative suppliers

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cost of an auction offset by price reduction

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 17

Whenever the word „auction“ is used in the purchasing context, a „reverse auction“ is meant. Difference between auction and reverse auction

€3 €3

Auction

€5

€5

Reverse auction

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SELLER wishes to sell an item

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BUYER wishes to purchase an item

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Aim is to obtain the HIGHEST PRICE

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Aim is to obtain the LOWEST PRICE

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Each consecutive bid is HIGHER

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Each consecutive bid is LOWER

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 18

English reverse auction is a “typical” reverse auction – suppliers submit progressively decreasing bids, with the lowest bidder winning.

price

English Reverse Auction

auto-accept level

accepted by buyer t

 Price determined by SUPPLIERS  Potential suppliers submit progressively decreasing bids, with the lowest bidder winning.

Source: BrainNet

 Used when price is the sole consideration for awarding winners  Very open level of information disclosure (or information release), where participant's bid details (like price and quantity) are revealed to competitors  Sometimes an immediate win price is set, where a bid at the specified price immediately wins the quantity bid and cannot be outbid.

BrainNet “Purchasing 101” Training : DRAFT

Page 19

In the Dutch Reverse Auction the buyer steadily increases price throughout a time period (e.g. 5 minuten). Whichever seller reacts first, receives the contract.

price

Dutch Reverse Auction

RfX owner specifies: accepted by supplier t  Price determined by the BUYER  Items steadily increase in price until the first supplier agrees to sell some quantity of the item at the current price.  Items open and close in serial order (consecutively), and only one line is open for bidding at any time.

Source: BrainNet

 the initial price that bidding starts.  the ceiling price that bidding stops (optional).  the time interval to increment the item price.  The total quantity desired.  Whether participants must bid the entire quantity for each item, or can bid a partial quantity for a line item.

BrainNet “Purchasing 101” Training : DRAFT

Page 20

In the Japanese Reverse Auction, the buyer steadily decreases the price throughout a time period (e.g. 5 minuten). Whichever seller is the last to bid, receives the contract.

price

Japanese Reverse Auction

RfX owner specifies:

last bidding supplier left

t  Price determined by the BUYER  Items steadily decrease in price until there remains only one bidding supplier.  Items open and close in serial order (consecutively), and only one line is open for bidding at any time.

Source: BrainNet

 the initial price that bidding starts.  the floor price that bidding stops (optional).  the time interval to decrease the item price.  The total quantity desired.  Whether participants must bid the entire quantity for each item, or can bid a partial quantity for a line item.

BrainNet “Purchasing 101” Training : DRAFT

Page 21

To obtain the maximum benefit, auctions must be properly structured an organised. Preparing for an auction: Process view

Auction Suitability and Structuring

Determination of Auction Tactics and Setup

Publishing and Execution

Analysis of Results and Documentation

Objectives Outcomes and criteria are determined

Auction is checked and published

Results are checked and analyzed

Bundles/lots created

Auction basic data is set up

Auction has been run, winner can be determined

Auction results and decisions documented

Bidders selected

Auction line item details are set up

Suitability of items checked

Auction start decided

Source: BrainNet

Final approval and communication to participants

BrainNet “Purchasing 101” Training : DRAFT

Page 22

Sub-Process 1: “Auction Suitability and Structuring” I. Goods/Services suitability check

II. Bundling auction lots

Check the goods/ services suitability for auctioning according to criteria like degree of standardization (comparability), saving potential, total purchasing amount.

Bundle the products and services that have to be purchased offline. For each of the bundles the supplier is able to enter a specific price information.

Often the product is too complex and cannot exactly be purchased from different vendors. Then auctioning is not the suitable tool.

In case there is an inside structuring of the bundles necessary, the purchase has to structure the bundles in competitive lots (e.g. laptops split into executive laptops and employee laptops).

Source: BrainNet

III. Bidder Selection

on to Sub-process 2

Select appropriate suppliers for your RfB Check the supplier with your team. Approval of suppliers beforehand is necessary to avoid supplier disqualification afterwards. Evaluate potential deliverables to check how realistic they are.

BrainNet “Purchasing 101” Training : DRAFT

Page 23

Sub-Process 2: “Determination of Auction, Tactics and Setup” I. Set up outcomes and criteria

Determine potential outcomes and targets of the auction (e.g. target price or better market overview). Evaluate and if necessary weight all auction criteria (i.e. targets and potential outcomes) in regard to competitive pricing, competitive contract baseline and competitive product and services.

Source: BrainNet

II. Define auction type

Select the auction type most suitable for the items you wish to purchase. Decide whether the auction should be open or closed, define bid placement structure (e.g. decrements, etc.) and the auction timeline.

III. Set up auction on-line

on to Sub-process 3

Set up the auction in the eSourcing platform. Make sure to let a second person double check the entries you’ve made

BrainNet “Purchasing 101” Training : DRAFT

Page 24

Sub-Process 3 & 4: “Analysis of Results and Documentation”

I. Run the Auction

Perform the auction, monitoring the results and moderating wherever necessary.

Check auction result validity, analyze the auction results and find out the best fitting supplier (normally based on lowest price offer). In case results are not acceptable or the validity of some bids is not given you have to decide whether a new auction has to be run or not. Maybe it is sufficient to clarify invalidity with supplier. If the clarification with the supplier does not lead to an agreement, a bidder disqualification can be made by the purchaser.

Source: BrainNet

III. Document auction results and decisions

II. Result Analysis

Evaluate the recommendation for performance metrics and describe potential benefits in saving tool. Prepare final decision meeting with details of the auction results and completed guideline. After the meeting, document the final decision of the meeting within a meeting minutes and send it out to the participants via email. Attach the guideline template of the auction to that email. Wait for the approval of the Business Owner (and other stakeholders) via email before creating contract or purchase order.

BrainNet “Purchasing 101” Training : DRAFT

Page 25

When making the analysis of either RfP/RfQ or RfB, make sure you consider the total cost of the product / service Elements to take into consideration: Total Cost of Ownership („TCO“)

„Purchase costs“

Visible

Often invisible / difficult to calculate

 Price

 Cost of Capital

 Customs

 Internal Handling

 Packaging

 Operating costs

 Transport

 Effort to use

 Insurance

 Energy usage  Maintenance / Repair

Total Cost

 Spare parts  Length of product life  Cost of disposal

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 26

Gerne stehe ich Ihnen für Rückfragen zur Verfügung. Kontakt Information

Matt Zaleski [email protected]

BrainNet Management Consultants GmbH

www.brainnet.com

Willy-Brandt-Allee 12 D-53113 Bonn / Tel. +49 228 725 37 0 Fax +49 228 725 37 37

Source: BrainNet

BrainNet “Purchasing 101” Training : DRAFT

Page 27

BrainNet Management Consultants GmbH Willy-Brandt-Allee 12 53113 Bonn, Fon: +49 (0) 228 72537-0 Fax: +49 (0) 228 72537-37

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