The RFx process has developed over time to enable procurement to most effectively source the products and services it needs. But as the function is tasked with a more challenging remit, existing processes must evolve. In this article we take a look at the limitations of the current RFx process for sourcing innovative ideas and solutions to novel challenges, and investigate how outcome-based buying and open innovation can plug this gap.
As the function responsible for sourcing and purchasing the vast majority of the goods and services that enterprise businesses use over the course of their operations, a key element of procurement’s role pre-contract encompasses evaluating the market and deciding which solution will best fit the organisation’s needs.
The RFx has evolved as a process for this evaluation, allowing procurement organisations to garner more information on vendors, their products and services, and the price of their solutions in order to inform their buying decisions.
This process ensures that procurement can source at competitive prices from trustworthy vendors. It also enables the function to specify their known needs comprehensively, and compare vendors’ capability side by side – given that the same RFx questionnaires will be electronically distributed (typically) to all potentially suitable suppliers.
There’s a reason this formula has persisted for so long – because most of the time, it works. Procurement professionals buy for a living, meaning negotiation for the best cost and quality of goods and services is second nature.
Changing business challenges
Businesses, however, are facing enormous challenges in a turbulent corporate landscape as we exit 2022 – turbulence which is affecting the way most functions operate. This is perhaps the most true in procurement and supply chain – between sociopolitical crises, war, a pandemic, rampant inflation, and an energy crisis to name just a few challenges, supply chains have become unstable, and prices are rising. As a result, the day job working at the interface between an enterprise business and its suppliers has deviated considerably from the BAU “back office” procurement function of old.
In this context, procurement is also being tasked with an extended remit. Rather than just ensuring cost, quality, and vendor compliance, the buying function is now frequently tasked with bolstering the resilience of the entire business, owning the sustainability agenda, and bringing new innovation into the organisation.
The function cannot rise to this challenge without adapting its ways of working; though the RFx is certainly not dead, looking towards other ways of sourcing the goods and services enterprise businesses require will be necessary to deliver on its new responsibilities.
In this article we take a brief look at the current parts of the RFx process and its limitations, before looking at one key alternative that will enable procurement to source transformative new solutions to growing challenges: outcome-based buying.
The Rfx process
The RFx process – where “x” refers to a variety of different types of vendor questionnaires – is a key method through which procurement conducts its evaluation of potential suppliers. These questionnaires cover a variety of stages of the buying process:
Request for Information (RFI)
RFI is a process for gathering structured information from potential suppliers that typically comes early on in the sourcing process. This information gathering is designed to narrow down the initial list of potential suppliers. As such, this tends to be the broadest or most ‘top-level’ request in this process.
The RFI helps determine whether a specific vendor should be asked for proposal or quotation as below.
Request for Proposal (RFP)
An RFP is a more structured document than an RFI, which elicits further details from vendors partially qualified at RFI stage. Requests for Proposal specify in greater detail what the buying organisation is looking to purchase, for what purpose, and also provide in-depth information on the evaluation criteria which will be used to assess vendor responses.
Request for Quote/Quotation (RFQ)
RFQs are most frequently used for purchasing items that are quantifiable and easily comparable between vendors, but can also be a step in the later stage of a sales cycle after an RFP process. As such they are simpler to complete for the vendor; RFQs look for an itemised price list for these items to allow easy comparison between suppliers, as opposed to a longer elaboration on how the product or service will meet the needs outlined by the buyer.
Request for Tender (RFT)
Though similar to RFPs, Requests for Tender are primarily used in the UK public sector. RFTs will require both an in-depth proposed solution and detailed costing, and will contain a set of draft contract conditions designed to help assess vendors’ level of compliance.
The problem with RFx
While the RFx provides an excellent process for when needs are clearly identified by the buying organisation, this format for engaging with potential vendors can undermine your ability to source new, innovative solutions to novel challenges the business might be facing.
Though RFPs, for example, can be constructed to be deliberately “vague” and provide plenty of space for suppliers to elaborate on their proposed solutions, the structured format is fundamentally designed around specifying not just what you want to achieve, but how this outcome should be reached. Without this structure, however, the ability to compare between solutions is lost. Thus potential vendors must work within the constraints of the RFP template, with little ability to suggest alternative solutions to the problem the buying organisation describes.
In these cases where innovative solutions are a must, the in-depth nature of the RFx process can also prove to be a barrier to engaging with the kinds of organisations most likely to deliver fresh ideas. Small start-ups or niche providers are frequently the source of the most cutting-edge ideas and solutions to unusual needs or problems, but their small workforce, time-poverty, and unfamiliarity with enterprise processes can make a hefty RFP a huge barrier of entry to engaging with large enterprise organisations. As a result, the process that is supposed to engage with suppliers for new solutions can prove to be alienating to the most innovative vendors.
Finally, the manual nature of many RFPs (the ones we’re most familiar with at Vizibl tend to arrive in an Excel spreadsheet sent to our team via email) makes the analysis process unwieldy for the buying organisation. What’s more, with vendors usually being invited to propose their solution, the pool of potential suppliers is ultimately limited to the pool of companies explicitly chosen for the RFP process by the buying organisation.
Outcome-based buying and open innovation
In the current climate of instability and unpredictability, businesses are often not sure what solutions they need in order to meet challenges head on and maintain their competitive advantage. This is especially true in the many verticals and industries undergoing huge transformation away from traditional business models – take, for example, tobacco companies.
A once-solid business model and reliable product has been affected by regulatory pressure and changing consumer behaviour, pushing the market away from traditional tobacco products towards vape units. Now, organisations that previously specialised in sourcing, processing, packaging, and selling a raw material are challenged with establishing themselves as key players in a hugely competitive niche of the consumer electronics industry.
Another key area where brand new solutions are needed is in the sustainability space, particularly around emissions – reaching Net Zero is an environmental imperative to protect people and planet, and we are at present projected to miss the goals outlined in the Paris Agreement. Though waiting for the market to provide greener versions of existing products and services will suffice in some categories, there are certain categories where this will simply not be possible, and total transformation is the only solution:
While most organisations will have upskilled employees and hired subject matter experts into their workforce to deal with these kinds of new challenges, there are other areas they can turn to for support.
The supply chain itself holds a huge wealth of experience and intel that will enable these companies to rise to the challenges they are facing whilst maintaining their competitiveness. Supply chain stakeholders come with their own R&D capacity, their own workforce, intimate knowledge of local markets in a global marketplace, and deep understanding of the market – including the competitor landscape.
Yet existing processes such as RFx do not facilitate effective engagement with the expertise of these stakeholders – be they incumbent suppliers or vendors that the business has not yet engaged with. For that, procurement needs a way to pose problem statements and desired outcomes to potential suppliers and partners – including those they may not yet be aware of – without needing to specify how they expect these problems to be solved.
This outcome-based approach to sourcing innovative solutions can be difficult with existing tools. Luckily, the team here at Vizibl have built our Innovation Hub to do just that.
Vizibl Innovation Hub
Supplier innovation is typically faster to market and more cost-efficient than home-grown ideas, yet many organisations struggle to effectively capture the wealth of exciting expertise sitting in their supply chains.
To solve for this problem, Vizibl Innovation Hub was designed to allow procurement and their colleague functions to source, triage, and co-develop new ideas from their incumbent supply base and beyond in a way that is robustly governed, measurable, and scalable.
Innovation Hub’s key Initiatives features allow users to propose detailed “problem statements” or “requests for ideas”, formalising the process of gathering potential solutions without the prescriptive structure of an RFx. Suppliers and other extended ecosystem partners can respond to these Initiatives through the Hub’s Opportunities feature – custom templated response forms that allow partners and vendors to propose and elaborate upon their suggested solutions.
And because good ideas can come from anywhere, Initiatives can be extended beyond the existing supplier base through public URLs and landing page embeds. This combination of functionality enables procurement to tap into the existing IP and future innovation potential of the wider market in order to deliver on their key organisational objectives.