To Be or Not to Be for the RFP

Whither the request for proposal in the age of e-sourcing and online auctions?

Tempe, AZ  September 17, 2001  eBreviate, a company known for its online auction tools, last week reaffirmed its commitment to the venerable request for proposal with the release of version 2.0 of its Web-based RFP application. The new software's "self-service" model allows purchasers to independently create and disseminate RFPs and analyze the responses from suppliers.

Given that eBreviate and companies such as FreeMarkets have promoted the use of online auctions as part of an e-sourcing process, it might seem counterintuitive that eBreviate would be refocusing attention on RFPs. Do requests for proposals still have a place in sourcing in the age of the online auction? That's the question that iSource recently put to Carrie Ericson, eBreviate's vice president of operations:

Ericson: Some folks in the space think that RFPs are going away with the advent of auctions, but you can't auction everything, nor is it appropriate to auction everything. [However,] you do need to gather information from your suppliers on just about everything. The RFP tool helps you interact and communicate with your suppliers in terms of gathering and exchanging information.

What we've seen is that where people do just an RFP, on average they can save 16 percent. If they just do an auction, they save 14 percent. But the combination of the two gets you up to 20 percent [savings]. We can debate the numbers, but what is much more important is the direction of the numbers.

What the RFP adds to the process is that extra link of communication to the supplier. It allows them to really understand what you're looking to have bid on, the parameters and the specification. It takes ambiguity out of their process and their quote, and they can give you a firmer quote without padding it.

iSource: Why can't you just provide that information during the auction process

Ericson: The auction is meant for a different purpose. Its main focus is to create a forum where there is competition. That is why you try to keep the events relatively short, 30 to 60 minutes, and that's why you use a lot of messaging to communicate and poke and prod bidders.

If you are also trying to gather starting bids or clarify specifications with suppliers, you have lost a lot of that element of momentum and competitive dynamic because you are focused on answering questions that would have been better to answer before the event. Our philosophy is [that] you get better results if you eliminate those issues from the auction itself and focus just on the competitive dynamic.

That being said, there are some very straightforward things, where there are no questions asked, it's the same supplier base you've always gone to, and the specifications are crystal clear  absolutely, go straight to auction, because there isn't going to be that give and take. But it's a riskier event, because if a supplier doesn't understand the specification, they will be unable to quote or they will misquote, and your auction event will unwind into answering their questions and improving clarity rather than focusing on the competitive dynamic that really results in the savings.

That's why we see it as two discrete steps. Adding the RFP step  actually, keeping it in, since traditionally people have done RFPs in the past  really does not extend your timeline dramatically, especially when you use Web-based tools. Our belief is that the clarity that the two-step process adds far outweighs the added time in terms of the results that you get.

iSource: You work closely with the practitioners at your customers. Where do you see us on the adoption curve for e-sourcing tools?

Ericson: I still see us on the early-adopter curve. There are a huge amount of acceptance and usage in the automotive industry, which is always the first to jump onboard procurement trends. The consumer products industry is also out there actively using the tools. The other big-hitting industry is the chemical industry.

I still see a lot of expansion potential in terms of the number of users. For the most part, because most of these tools are still relatively new, people are still primarily piloting them, using them strategically within their organizations, as opposed to having them on everybody's desktop. The adoption rate is slower than any of us would have entertained, but change is hard for folks, and somewhat threatening.

It's interesting that the pushbacks that we have gotten since we have started working on e-sourcing efforts at eBreviate are the same pushbacks that I got when we were selling strategic sourcing in the traditional manner at A.T. Kearney: perceived lack of control by the buying community  this is my supply base, I control it, and I know how to do this. Then there is the other concern about supplier pushback and concern about destroying the supplier relationships.

iSource: Are you seeing people expand their use of the tools into new commodity categories?

Ericson: Yes, I think so. Our competitors and we are building up experience, and as each company we work with gets more creative, it gives others a comfort level that it's been done before. People's hypothesis initially was that this was only going to work for some MRO-type categories that were highly generic in nature and not too complicated. But we have done RFP work for everything, because you're really just collecting information.

iSource: So you see RFPs staying around?

Ericson: Oh, yes. I think the use of online RFPs will far and away outweigh the use of [online] auctions, because it's a communications survey tool that you need for everything you buy.

iSource: Was there something of a love affair with the auction and people thought the RFP would go away?

Ericson: No, not at all. I just think that the auction tools were developed first because they were sexy and new. They really add a completely different element to the sourcing. The electronic RFP is an enhancement to what people have always done, and you could really get the same results from a traditional RFP; it just takes a lot longer to make that happen. The [online] auction gives you a radically different result in terms of what you could get out of it.