Opinion

The Path to Collaborative Bidding

As companies move up the sourcing continuum, they likely will find that the typical transaction-based bidding methods are lacking, especially for complex, strategic, long-term relationships.

Moving to more strategic sourcing and partnership models will enable a more distinct and direct connection to corporate buying strategy. Sourcing Business Models fall along a sourcing continuum, as shown in Figure 1 below:

Moving along the continuum to more strategic sourcing and partnership models means consciously using contract structures that shift from transactional and commodity-based thinking to one based on more of a “partnership” between the buyer and supplier. As a buyer and supplier move up the sourcing continuum, they design contracts that are purpose-built to drive productivity improvements and innovation.

As we learned in a previous IS article,[1] the “ABCs of RFX Bidding Methods: Which Ones are Right for You?”  there are many standard bidding methods companies use to select their suppliers.

There are different names and terms for the various bidding methods, but the vast majority of those “RFx” practices fall into five categories. The figure below uses the term that is most popular, but also lists alternative names used to describe the same or roughly similar concept.

Figure 2: Continuum of Bidding Approaches

As organizations embrace more strategic, performance-based and Vested outcome-based supplier solutions during and after the Covid-19 pandemic, they should shift their approach from standard competitive bidding methods to more sophisticated and collaborative bidding approaches that seek to buy “solutions,” “strategic partnerships” and/or “alliances.”

The Limitation of Existing RFx Bidding Methods

A few advisory firms have promoted the concept of collaborative bidding methods. These include the Information Services Group (ISG) – which shared insights into why the conventional request for proposal process is “dead” and promotes an alternative “Request for Solution” methodology in a white paper titled “The RFP Will Never Be the Same.”[2]

While existing RFx methodologies offer benefits, many fall short for various reasons, including:

Proprietary Solutions

While some consulting firms are beginning to promote more collaborative approaches, their methodologies are proprietary. Proprietary solutions prevent buying organizations that choose to not use a consulting firm from learning and using sound methodologies. In addition, many buying organizations have smaller projects that do not warrant the budget for advisory services. In both cases, organizations do not have good options for learning how to successfully build collaborative procurements.

Limited Focus on “Cultural Fit”

Existing methodologies focus heavily on developing an “expert solution.” While the solution is essential, there is a need for the collaborative process to not only get free consulting from the supplier. Instead, there is a desire to foster a spirit of collaboration that is designed to build trust and create a high performing team. The collaboration process itself should be used as input for determining cultural compatibility and fit with the various suppliers

Ethics

Suppliers are reluctant to participate in collaborative procurement methodologies if they believe that the buyer is looking for “free consulting” or is likely to take a proprietary solution identified in an (Request for Services) RFS and subsequently re-compete it to multiple bidders. The buyer’s goal is to achieve best price via an RFP rather than signing a deal with the company that proposes the optimal solution. In order to be successful, the buying organization must have strong processes, a reputation for integrity, and credibility with their supply base.

Throw It over the Wall Mentality

Even a collaborative RFP process can go sour in the execution of the RFP when the interpretation is not clearly understood during negotiations. Too often, a collaborative RFP proposal will suddenly “disappear” because once the negotiation phase commences, the buyers turn to non-collaboration means, tactics, and discussions. The result? A traditional purchasing contract, focused on the wrong measures, desired end results, etc.

The Collaborative “Request for Partner” Bidding Method

The sixth bidding term, Request for Partner (aka RFPartner), was coined by University of Tennessee researchers to describe a highly collaborative competitive bidding process used for strategic and complex sourcing initiatives. A Request for Partner process uses some of the key concepts found in various request for solution methodologies, but formalizes them into an open-source methodology.

A key goal is to identify a supplier that is innovative and able to provide transformation through outsourcing, and also is a good “fit” for their organization. For this reason, the competitive bid process is very transparent and encourages collaboration – from developing requirements through contract development and established governance mechanisms the parties will use after the contract signing. This highly collaborative methodology allows the buyer and supplier to not only develop the “solution” during the bidding process, but also to establish a working knowledge of how well the organizations will work together.

Another important aspect of the RFPartner process is the ability to select the supplier with a good “cultural fit.” Organizations that use a Request for Partner process are doing so because they want to create a highly strategic, long-term relationship – often purposefully created to drive transformation or innovation.

Purposely picking a supplier with a strong cultural compatibility is an essential difference to a more “classic” way of sourcing.

The RFPartner methodology is well-suited when a buying organization needs to develop a contract with a strategic supplier for a highly complex and strategic outsourcing initiative. It is also ideal when the buying organization is seeking a supplier who will play a major role in transformation or innovation. A key intent of the RFPartner methodology is to create a highly collaborative longer-term relationship where innovation, cultural fit, and a win-win mindset are embraced as essential to engage a dynamic environment. The process is designed to be used by buyers and suppliers that seek to contract using a more advanced Performance-Based/Managed Services or a Vested Sourcing Business Model.

Due to the time and resources involved, a request for partner should be used for strategic outsourcing initiatives. A RFPartner process requires a significant amount of stakeholder involvement from both the buyer and supplier’s organization. As such, organizations that simply want a service provider to provide a commodity type service with low risk and a limited need for innovation should use a more conventional approach.

RFPartner uses a cross-functional team representing key business stakeholders and users that have responsibility for creating supplier down-select criteria. Subject matter expert stakeholders participate in proposal review, solution development, negotiations, and transition planning. It also involves site visits to assess supplier capabilities and meetings with one or more of the potential supplier’s clients as references. Due diligence meetings include discussions on performance, and often involve validation of information from the RFP about capabilities and observation of the supplier “in action.”

RFPartner requires the highest amount of supplier involvement. Like most complex sourcing initiatives, the Request for Partner methodology uses a multi-stage selection process. Suppliers making each “cut” have increased responsibility and involvement in the process, so that buyers can get comfortable with how potential suppliers will “fit” into their organizations. Suppliers that are short-listed should expect to spend time in site visits and stakeholder workshops that will help them develop their proposed solutions. These collaborative sessions are designed for a high degree of supplier interaction where the buyer and supplier develop operational knowledge of each other’s team and how well the parties work together.

Five phases comprise the implementation of the RFPartner methodology, shown in Figure 2:

Figure 3: Phases of the Request for Partner Methodology

Vancouver Coastal Health (VCH) employed the RFPartner bidding methodology—which it called the Mutual Value Solution Process—when it chose Compass Canada partner for a public/private Vested relationship, a first of its kind for the Canadian government.

For more on collaborative bidding and the RFPartner process, see the University of Tennessee/Vested White Paper, “Unpacking Collaborative Bidding: Harnessing the Potential of Supplier Collaboration.”

[1] Editor – publication date and link to the ABCs of competitive bidding article.

[2] “The RFP Will Never Be The Same: Emerging Approaches to Innovative Sourcing,” Thomas Young;

http://www.isg-one.com/knowledgecenter/whitepapers/private/papers/White_paper_-_RFS_Innovation.pdf

 

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