Everything you always wanted to know about sourcing – part two

It’s time to go through an essential piece of the sourcing puzzle, one that is long forgotten, yet very beneficial.

In PART 1 I talked about different types of sourcing, this part will be dedicated to the actual core of the sourcing process, specifically the art of the RFI on the example of a big tender or type A sourcing. As you will see further on in the blog, my description of a Request For Information works as a three-part document whose purpose boils down to three major imperatives:

1. Mobilize – draw attention of the supply market and increase credible threat to incumbents
2. Learn – explore the supply market, gain new insights, identify new potential sources of supply
3. Filtrate – identify suppliers which are likely to respond to an RFP out of many suppliers listed, i.e. create a perfect short list from the long one

Now, some may say that the RFI process has become archaic and that’s exactly why I’m going to talk about it on the big tender example because type B and C are rapidly being automated. But there is also an interesting thing that has happened with the introduction of e-sourcing – the difference between an RFI and RFP has unfortunately become increasingly non-existent. That’s the reason why some suppliers don’t respond to such an RFI because it is simply too demanding for first contact.

Just imagine you’re a greengrocer and a buyer comes to your store and before you even have the time to say hello, the buyer proceeds to ask your phone number, whether you’re married or not, how many children do you have, what’s your annual income, your social security number, where do you get your produce from, whether they’re organic or not, what kind of fertilizer was used, can you get 70% off a kilo of apples, etc. You can add 100 more questions to this list. So, how would you react? You would feel incredibly overwhelmed. Sure, there are some really good questions in there, but you have to sift through everything else to get to them. And sure, one or two greengrocers will answer every single question because they really want your business, but a lot of them will feel attacked and won’t react favorably. Of course, retail is a different animal, but my point is that there’s a certain business etiquette required here where relationships are built more slowly if they are to last.

That’s why I called it the art of the RFI. Buyers needs to be an authority on their categories in order to construct a precise and brief RFI that serves as a business card for them and their companies.

It’s really no laughing matter when a supplier can tell from your RFI that you don’t really know what you’re buying and it can lead to being taken advantage of in the future.

What is a good RFI, then?

It’s short, inviting and professional.

The inviting part is the introductory letter where you introduce your company in a positive light, announce what’s your purpose with this invitation to an RFI, benefits for the suppliers and you can even mention what’s the annual purchasing volume that a supplier can look forward to if they work with you. In addition this invitation can serve as a disruptive element for incumbent suppliers, who will realize that the current supplier database is being re-evaluated.

The short part is a document that deals with the general supplier information. It consists of contact information, company data such as total sales, number of employees, sales of necessary goods for two previous years and major customers and competitors. Of course, it’s also good to ask if they are interested in sending an RFP or they just want to get into the database for future reference.

The professional part consists of a yes/no questionnaire about category specific information you need to know. This is the part where it’s very important to be very precise about your needs, to show your category knowledge and also to make it very easy for the supplier to fill out – hence the yes/no format. For a knowledgeable buyer, around 10 questions should be enough to cover everything needed for an informed decision.

Of course, this is a blueprint that needs to be fine tuned for specific company needs. But once this is done, then it’s time to send the RFIs out into the world. It often happens, with e-sourcing, as well, that buyers send the RFI only to a handful of approved suppliers or even worse, to suppliers that they googled the day before. An RFI works best for categories where suppliers aren’t consolidated and then it’s better not to limit yourself only to known suppliers, because that negates the purpose of finding someone who is a perfect fit. There are supplier databases available that are a great resource in this process.

And after the RFIs come back, the process of creating a long list that diminishes over time begins. Once again, the greater the number of suppliers, the less information is requested. As the suppliers approach your short list, then you will increase the amount of specific information and commitment necessary from them.

As I have mentioned in my previous blog, big tenders can be an enormous mobilization force in the market, but also within the company, but only if done right. Many companies refrain from this type of sourcing because they either don’t want to release certain internal information to a large number of suppliers or they simply think there’s nothing better out there. But given the speed of change on today’s market, it’s very complacent and potentially dangerous not to at least see what other options are out there which can bring exciting new opportunities for the company. This extra mile can mean a world of difference.

So, here we are, PART 2 of this sourcing show is here for you to agree/disagree with, add on, comment or like. The final part will deal mostly with RFP and it will touch upon the negotiation process.

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