Part II: Effective Supplier Evaluation – The Price is Right… How about the Supplier?

By Ben Werner, Consultant, The Hackett Group and Auri Ghatak, Manager, The Hackett Group Essential Components for a Comprehensive RFP Every RFP will be different depending on the category, geography, the buying company (size, industry), current market conditions, etc., but every comprehensive and well-structured RFP should contain most if not all of the following elements:
  • Response Deadline – Deadline for response submittal.  It is advisable to clearly state the consequences of a delayed response and to reinforce the deadline with the appropriate client contact for suppliers that anticipate delays. One often encounters the scenario where reputed, competitive suppliers refuse to bid because the timeline is too challenging. In order to avoid a scenario where a challenging deadline eliminates prominent suppliers, there needs to be a contact person who works with these suppliers to agree on a feasible submission date for their proposals.
  • RFP Terms and Conditions – Set of terms and conditions that govern the procurement (such as any costs incurred in submitting bids are solely the supplier’s responsibility; proposal prices to be valid for 90 days; etc.)
  • Contract Terms and Conditions – Sample contract which the buyer intends to execute with the winning supplier(s). Typically suppliers are asked to review and indicate any clauses with which they do not agree. This helps shorten the overall process by conducting contract negotiations in parallel with the overall process. Caveat – suppliers will often “agree” to the terms and conditions during the RFP without carefully reviewing the contents and will want to have extensive changes later on or lawyer reviews at the last minute. Performance metrics with supporting liquidated damages and rewards must also be included.
  • Evaluation Criteria and Process – RFP’s need to outline the evaluation criteria which will be used to score the suppliers and the process which will be used to evaluate the responses.  Relative weighting also needs to be provided.
Evaluating the RFP Determining and documenting the methodology for evaluating the qualitative and pricing elements of the RFP prior to the RFP’s distribution is critical for proving internally that the methodology does not favor any one supplier nor is done in an “arbitrary and capricious” manner. The evaluation criteria and weighting should be developed by the buyer in collaboration with the end-user. Following these two best practices will help speed up the supplier selection process, which  is often drawn out unnecessarily. When the team is developing the evaluation criteria and weightings (i.e., a weighted scorecard), it is recommended that the criteria are organized into various assessment categories such as supplier credibility/overview, technical support, price, etc. Each assessment category should be given an overall % weighting with each criterion within the assessment category having its own % weighting. This method helps make sure one criterion is not given too much weight, and it allows for an easy, systematic comparison of supplier scores. Criteria weightings typically add to 100%, but a point scale can be used instead. Since each RFP is different, there is typically no one right way to evaluate suppliers. The key is to allow for some flexibility while helping to drive the greatest savings opportunities and maintaining an equitable process. At the end of the day, the goal any time a company bids out a key category should be to maximize the value the company can receive from the supplier. Therefore, buyers need to receive a well-structured and comprehensive bid from suppliers that will allow the buyers to select the best overall supplier. In making this effort to select the best possible supplier, efficiency cannot be lost from the equation. Buyers must develop an RFP and evaluate the responses in a timely manner as to keep pace with their other purchases and responsibilities. If buyers decide to ignore this advice and select their suppliers primarily according price, their suppliers’ performance will continue to vary just like Eli Manning’s QB rating.