Factors that Doom Potential Savings in RFPs

Factors that Doom Potential Savings in RFPs

What factors have doomed expected savings in RFPs at your company?

I have a long list of explanations that have been shared with me. I am confident you have probably experienced most or all of these during your career. There are more that I can share but these are the most common.

Unrealistic delivery deadline – the business unit takes longer than promised to provide the final details to the supplier. The supplier feels squeezed by the shortened lead time. Concessions are made but they are never reflected in the agreement.  

New specifications are too rigorous – the supplier originally thought they could meet them but now asks for a change in scope. A change in specs is provided to the supplier but the financial impact is not reflected in the agreement.

Spec creep – small changes in scope occur over the course of a year or more but the financial impact is never analyzed due to lean staffing. “Suddenly” all those small concessions kill the budgeted savings.

Impossible RFP deadline – suppliers are running lean too. If they are not given a reasonable amount of time to thoroughly analyze the RFP, they will simply provide a bid with a cushion for contingencies. Others might simply decline because submitting a “best guess” is very risky.

Changing specs during the RFP – suppliers may understand this but will typically add a blanket markup to cover the unknown.

The big bang – spend categories that haven’t been managed consistently can often yield big savings. If the savings were achieved by changing a long-term supplier, you need to stay vigilant. The new supplier might have offered a very attractive price to get the business. They know changing is a hassle and will expect to be able to raise their price upon renewal since you probably don’t want to go through another change.

Supplier indifference – If your process is cumbersome, it can demotivate suppliers. If they haven’t won any business recently, they may decline to participate. Suppliers may also take a pass if your specifications are unrealistic versus other opportunities.

Limited time to plan – most of us have more projects on our plate than we can effectively manage. I normally recommend ranking the risk associated with a spend category. This is a sound way to determine where your time will be best spent. Many times, commodities are overlooked. This can be a big mistake. A health care client achieved remarkable savings in print with a modest amount of planning.

Multiple stakeholders – dividing responsibilities is appropriate, but one person must be the decision maker to settle conflicts.

Complicated discounts and rebates – the supplier’s accounting system may not be able to capture the data to properly calculate your discounts and rebates. Your accounting system may not be able to do it either. Collecting and analyzing data with spreadsheets is a time-consuming process that is prone to errors.

Automatically accepting the lowest price – we all know that the true value of a contract has many factors. Designing your RFP to weigh all the factors will ensure you calculate the true total cost of ownership. Some organizations must accept the lowest bid. If that is your situation, it is essential that you plan properly to achieve a realistic total cost of ownership.

If you find yourself thinking “these are issues I deal with way too often” – perhaps it is time to bring in a professional to help your organization get back on track.

Ask better questions, make changes and 2019 will be your best year ever.

Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.

If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at (973) 718-7071 x875. The call will be forwarded to my mobile phone if I am not in my office which is pretty likely.

If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.

You Won’t Drift to Success©

Commit to taking the next step.

Until Next Time, I Wish You Great Success in Your Business and in Your Life

Mike Jeffries