The request for proposal, often shortened to RFP, is a decades-old tool used every day all across the globe. Indeed, countless businesses and organizations of all sizes use the RFP process to gather and organize data, make strategic purchasing decisions and find the best vendor while maximizing value and minimizing risk.
Despite its prevalence and importance, many professionals still struggle with the RFP process. Admittedly, while incredibly important, the RFP process is often complex and time-consuming. Not to mention, being responsible for picking the perfect vendor for a mission-critical, high-value project that your organization is depending on is a lot of pressure.
Fortunately, with a little background information and guidance, you’ll have what you need to navigate the RFP process while following best practices, securing competitive prices and reducing risk. From asking the right questions to how to score RFP responses, there’s a lot to cover. Whether you’re creating your first RFP or fiftieth, this guide can help you feel more confident managing RFPs. Let’s get started.
To ensure we’re all on the same page and you get the most out of this guide, we’ll start with the basics. Here you’ll find the answers to:
An RFP is a formal, questionnaire-style document issued to prospective vendors from an organization that intends to buy a product or service. The RFP gathers vendor data in a standardized and organized format enabling faster, easier comparisons. And, what is the RFP process? The RFP process is the workflow and steps required to select the right vendor while minimizing cost and risk.
The process is designed to be an objective and systematic approach to sourcing and purchasing. Because of the detailed and thorough nature of the RFP, it can be used to more confidently select the best vendor for long-term partnerships. This holistic approach to procurement is also called strategic sourcing. Accordingly, RFPs have played a crucial role in helping almost every business achieve their goals.
To be successful, requests for proposals require tremendous coordination. Various stakeholders must work together to identify a need, gather information and explore solutions.
Defining and documenting key roles and responsibilities ensures your organization develops an effective RFP process.
Business stakeholders
RFPs often start with an individual, department or team that requests a purchase or solution. Often, input directly from these stakeholders guides the project. From defining the need to writing the RFP to scoring the results, having engaged stakeholders improves project outcomes. In addition, the business stakeholder may also create and manage the RFP.
Procurement professionals
As the architects and managers of the RFP process, procurement professionals are essential to success. They vet the request. Then they facilitate the creation, distribution and evaluation of RFPs. In addition, they work with vendors throughout the process to monitor progress, answer questions and provide feedback. Common titles of procurement professionals include procurement manager, strategic sourcing manager and other procurement roles.
Consultant
An organization that doesn’t have the expertise or bandwidth to navigate the RFP process may hire a procurement consultant. They interview the client to understand needs and leverage their expertise to select qualified vendors, manage communication and assess results before making a recommendation.
Executives, CFOs and CPOs
For high-cost, strategic procurement projects, an executive, chief procurement officer or chief financial officer is usually tasked with providing final approval for the purchase. They will evaluate cost, projected return on investment and alignment with organizational goals.
Vendors
Organizations invited to respond to an RFP are called vendors or suppliers. They prepare a proposal that answers the RFP questions, highlights their differentiators and, ideally, persuades the buyer that they’re the right choice for the project.
Vendor partnerships can make or break your organization. Accordingly, RFPs help to ensure that vendor selection is data-based, strategic and thoughtful. The process yields short- and long-term benefits.
When an organization needs to make a high-value purchase, there are a lot of important elements. Buyers must take into account dozens of different considerations. For example, you may need to explore a vendor’s experience, finances, culture, technical abilities, security practices, product quality and more. The RFP centralizes all of this information from multiple vendors in one document.
RFP purchases are often big investments. Consequently, it’s important to ensure you partner with the right company while keeping costs as low as possible. By definition, RFPs are competitive, which encourages each potential vendor to present their best offer. Even if you have an existing relationship with an incumbent vendor, it’s a good idea to run an RFP for high-stakes, high-value projects.
The RFP process uses data to ensure objectivity. Indeed, it allows you to gather consistent data from all prospective suppliers and avoid favoritism, bias or unfair comparisons. It provides clear, auditable documentation of how you reached your decision.
Additionally, for government entities, the RFP process may be required by regulation. This is to ensure that taxpayer dollars are allocated based on data and the process is transparent and fair.
Risk is inherent in any vendor or supplier relationship. Fortunately, the detail of the RFP process allows organizations to minimize vendor risk by verifying and inspecting a vendor’s diversity and sustainability practices, security policies and compliance with regulations. This process illuminates any potential threats before entering into a contract and enables your organization to respond accordingly to mitigate risk.
Because of the time required to create and manage them, RFPs aren’t a fit for every purchase. Remember, the benefit of the RFP is to save money and protect your organization. So, if you have a small, one-time purchase, the risk is probably minimal and the time investment of an RFP may outweigh the potential benefit.
To help provide guidance, organizations commonly establish a cost threshold in their procurement policy. If the project budget meets or exceeds the set amount, an RFP must be issued. The threshold varies based on the size of the organization but typically falls somewhere between $5,000 and $250,000. In addition, RFPs are a good idea for strategic projects or purchases that have a large organizational impact.
Use an RFP if:
If this doesn’t describe your project, you may need to use a different type of vendor information request. For example, consider using a request for information (RFI), request for quotation (RFQ), request for qualifications (RFQ) or request for offer (RFO). Explore these additional request management (RFX) processes here. Or click the infographic below to view a guide.
