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 Contract

internal purchasing
client professional

Commonly used RfX processes

A set of general processes or mechanisms that  RfD – Request for Demand

provide a structured way for buyers and  RfI – Request for Information
suppliers to interact with each other and  RfP – Request for Proposal
conduct business: often the exchange of specific
 RfQ – Request for Quotation
items or services for a specific price, but also the
exchange of information, such as capabilities or  RfB – Request for Bid
willingness.  Negotiations

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 2

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 purchasing
client professional

 What kind of a laptop?

The RfD aims to understand  Target groups, specifications?
internal demand & needed  How many?
requirements and addresses  Is there more demand in the
the stakeholders. company?
 Can demand be bundled or otherwise
managed?

Source: BrainNet 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

A Request for Information (RfI) is a way for buyers

“hmm …” to gather information about prospective suppliers and

the items they can provide.
Buyers often use the information gathered by an RfI
purchasing as input for designing a future sourcing activity,
professional i.e. as an initial stage of a multistage RfX activity.

Benefits
 identification of interested sellers
 match between products requested and offered
 info about current market trends & history
 typical delivery conditions
 identification of problems with provided product
specs

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 4

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

 Typically designed as a questionnaire for

suppliers to complete
“hmm …”  Suppliers generally indicate interest, without
purchasing
entering prices, quantities, or any other
professional
specific item terms.
 However: general information about price
When to use RfI? ranges can be asked to verify the business
 first-of-a-type purchase case
 little information about suppliers  Can be augmented by telephone discussions
 complex products / personal meetings
 product specification perceived as
incomplete – internal client without
 RfI results in no contractual obligation
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

 Price
Final
Second negotiations  Non-price issues
stage filter
First stage (organisation,
filter e.g. RfP / RfQ / operations / quality,
Auction systems, strategic fit)
e.g. RfI

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 6

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

“ ” “
€
purchasing
professional suppliers
”

 Description of the buyer's specific needs. Proposal collection is typically

 Request for pricing and delivery proposal. a sealed process, where
participants know very little if
 Additionally, an extensive questionnaire is used,
anything about other
so that thebuyer can determine the capabilities
participants and the proposals
and flexibility of potential suppliers.
they submit.

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 7

The terms 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 Request for Quotation

 Best suited for more  Used for straightforward

complex products / services, situations, where price plays
where price is just one of the key role
the factors  Product is well known and
 General structure provided, can be described in detail
however suppliers can RfP  Rigid structure, suppliers
extend the offer with extras vs
merely to provide price with
 More of a “here’s my RfQ some background
problem, give me a solution information
with price” approach.  Can be a follow-up to an
 More difficult to compare RfP
offers.

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 8

 Overview RfP process

RfP Criteria RfP RfP RfP

Definition Generation Distribution Return

 Commercial  Cover letter  Supplier notification  Analytical tool

 Price  Commercial  RfP distribution development
 Quality information  Supplier  Quotes analysis and
 Technical communication benchmarking
 Warranty
information  RfP communication  Best case savings
 Maintenance
 Additional  RfP return calculation
 Supplier ability
information  Non-price criteria
 Technical
 Terms & conditions evaluation and
 Specifications scoring
 Response guidelines
 Drawings
 Response from
 Configurations
 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 Page 10

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

 Introduction  Request for Proposal

 Overview Background Information
(ctd.)
 Goals of the RFP Process
 Quality Data
 Rules of the RFP
 Request for Proposal Objectives
 Inventory & Inventory
Management
 Contact Information
 Cost Reduction
 References
Opportunities
 Request for Proposal  Performance Measurement
Background Information
and Reporting (Feedback)
 Financial Position and  Request for Proposal
Performance
Pricing Information
 Primary Markets Served  Pricing
 Production Facilities  Future Pricing
 Procurement Information  Payment Issues
 Negotiating Team  Discounts & Rebates
 Quality Data

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 11

 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.
 Target the appropriate senior management
at the supplier organization.
 Ensure executive management at supplier
is involved if sourcing group spend is
significant and complex.
 It may be helpful to distribute the RfP to
suppliers (senior and executives) during a
Supplier conference explaining the process
and expectations.
Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT
 Suppliers must comply with the requested
format, diversions make it more difficult to
evaluate and consume time.
 Once RfP’s are issued, respond back to all
suppliers for any questions received. This
promotes fairness in the process and
minimizes redundant questions.
 Irrelevant questions or areas to be
discussed during negotiations should be
identified and appropriately differed.
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 DESIGN YOUR RFP WITH THE

END RESULT IN MIND!
 Reveal cost, capacity and
capability
If you don’t specify the format for
 Narrow the scope of potential
answers / prices, every supplier will do
suppliers
it differently and it will take you weeks
 Prepare the team for negotiations
to collate the data and compare them!
 Look for new discoveries
 Identify areas where suppliers Apart from the proposal in the standard
format, request that the suppliers enter the
differentiate
prices in an Excel template you sent them.
 Check the results
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
suppliers
professional

 Detailed description of buyer’s needs is presented  Suppliers present price offers

to the bidding participants (respondents)  Lowest-priced offer usually wins
 Price, quantity, quality (specs), delivery time,
starting price
 Buyer determines the parameters of the auction
 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
 Detailed overview / comparison of prices
(including partial price comparisons)
suppliers
 Market price determination
When to use RfB?  Reduction of price
 standard / comparable product
 Reduction of cycle time
 relatively large total purchasing
amount  Baseline for savings tool
 competitive market
 a number of alternative suppliers
 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

€5 €3

€3 €5

Auction Reverse auction

 SELLER wishes to sell an item  BUYER wishes to purchase an item
 Aim is to obtain the HIGHEST PRICE  Aim is to obtain the LOWEST PRICE
 Each consecutive bid is HIGHER  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.
English Reverse Auction
price

 Used when price is the sole

consideration for awarding winners
 Very open level of information
accepted disclosure (or information release),
auto-accept level by buyer where participant's bid details (like
price and quantity) are revealed to
t competitors
 Sometimes an immediate win price
 Price determined by SUPPLIERS is set, where a bid at the specified
 Potential suppliers submit progressively price immediately wins the quantity
decreasing bids, with the lowest bidder bid and cannot be outbid.
winning.

Source: BrainNet 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.
Dutch Reverse Auction
price

RfX owner specifies:

 the initial price that bidding starts.

accepted  the ceiling price that bidding stops
by supplier (optional).
 the time interval to increment the
item price.
t  The total quantity desired.
 Price determined by the BUYER  Whether participants must bid the
 Items steadily increase in price until the first entire quantity for each item, or can
supplier agrees to sell some quantity of the item at bid a partial quantity for a line item.
the current price.
 Items open and close in serial order (consecutively),
and only one line is open for bidding at any time.

Source: BrainNet 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.
Japanese Reverse Auction
price

RfX owner specifies:

last bidding
supplier left  the initial price that bidding starts.
 the floor price that bidding stops
(optional).
 the time interval to decrease the
item price.
t  The total quantity desired.
 Price determined by the BUYER  Whether participants must bid the
 Items steadily decrease in price until there entire quantity for each item, or can
remains only one bidding supplier. bid a partial quantity for a line item.
 Items open and close in serial order
(consecutively), and only one line is open for
bidding at any time.

Source: BrainNet 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

Determination of
Auction Suitability Publishing and Analysis of Results
Auction Tactics
and Structuring Execution and Documentation
and Setup

Objectives

Outcomes and criteria are Auction is checked and Results are checked and
Suitability of items checked
determined published analyzed

Auction has been run, Auction results and

Bundles/lots created Auction basic data is set up
winner can be determined decisions documented

Auction line item details are

Bidders selected
set up

Final approval and

Auction start decided communication to
participants

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 22

Sub-Process 1:
“Auction Suitability and Structuring”
I.
Goods/Services
suitability check
Check the goods/ services
suitability for auctioning
according to criteria like
degree of standardization
(comparability), saving
potential, total purchasing
amount.
Often the product is too
complex and cannot
exactly be purchased from
different vendors. Then
auctioning is not the
suitable tool.
Source: BrainNet
II.
Bundling
auction lots
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.
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).
BrainNet “Purchasing 101” Training : DRAFT
III.
on to
Bidder
Sub-process 2
Selection
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.
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. III.
on to
Define auction Set up auction
Sub-process 3
type on-line
Select the auction type Set up the auction in the
most suitable for the eSourcing platform.
items you wish to
purchase. Make sure to let a second
person double check the
Decide whether the entries you’ve made
auction should be open
or closed, define bid
placement structure (e.g.
decrements, etc.) and the
auction timeline.
BrainNet “Purchasing 101” Training : DRAFT Page 24
Sub-Process 3 & 4:
“Analysis of Results and Documentation”

III.
I. II.
Document auction
Run the Auction Result Analysis
results and decisions

Perform the auction, Check auction result validity, analyze
monitoring the results the auction results and find out the
and moderating best fitting supplier (normally based
wherever necessary. 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.
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.

Source: BrainNet 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
 Spare parts
Total Cost
 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
m.zaleski@brainnet.com

www.brainnet.com
BrainNet Management Consultants GmbH
Willy-Brandt-Allee 12
D-53113 Bonn / Germany
Tel. +49 228 725 37 0
Fax +49 228 725 37 37

Source: BrainNet BrainNet “Purchasing 101” Training : DRAFT Page 27

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