Dump the RFP to reap better outsourcing results

Every day, hundreds of organizations conduct competitive bids to pick the best supplier to meet their needs. But what happens when they rely on the wrong tools to do so?

A common pitfall is what University of Tennessee researchers have coined the Outsourcing Paradox — which is when a buying organization procures goods or services from a supplier expected to be the expert and then tells them how to do the work. Innovation stagnates because specifics defined in the tender process restrain suppliers.

The conventional approach to bidding has been a Request for Price/Quote and a Request for Proposal. Advances in standardized and automated bidding systems aimed at speeding up the supplier selection process often creates an inherent perverse incentive where the buyer gets what they asked for in the bid — not necessarily what they needed. Why? Suppliers are forced to respond to predefined bid specifications and lack the opportunity to have a more collaborative dialogue to help their clients get the best possible solution.

Understanding competitive bid methods

There are six common types of competitive bid methods in practice today, ranging from highly competitive and arm’s length in nature (an e-auction) to highly collaborative (request for partner) as shown in the figure below.

Kate Vitasek / University of Tennessee

A University of Tennessee white paper — Unpacking Competitive Bidding Methods: The Essential ABCs of the Various RFX Methods — provides insight into the what, why, and how of the most popular bid methods.

The below highlights the less used but highly powerful collaborative bidding methods known as a Request for Solution and a Request for Partner and how they can help organizations get more value out of their bid process.

Request for solution 

A Request for Solution starts with the buyer coming to the table with background information, data, and characteristics of the existing environment, measurable outcomes, and an outline of the long-term vision. For example, they transparently share information such as:

• Business goals and objectives
• A description of the desired supplier output or business outcomes
• Any known or perceived constraints
• High-level existing operating data to provide a general landscape of the current situation

Think of a Request for Solution as the buyer presenting the supplier with a puzzle, and the supplier’s job is to propose the best way for the buyer to solve the puzzle.

Embracing a collaborative Request for Solution model transforms the procurement journey by incorporating a supplier “dialogue” phase where the buyer and supplier collaborate on the best possible solution. A Request for Solution invites suppliers to share their unique expertise and aligns buyers and suppliers towards a shared aspiration, instead of merely adhering to predefined specifications.

Stepping into this model means inviting suppliers to step up and present innovative solutions tailored to the buyer’s needs. This collaboration sparks during dynamic workshops, turning problem-solving into a harmonious creative process.

A Request for Solution still ends with the same goal as more traditional bid processes — picking a supplier. But the collaborative process helps align the supplier’s understand of what the buyer needs while opening the eyes of the buyer to how various suppliers can best meet their need. Procurement shifts from being a transaction to one of being a partner, bringing buyers and suppliers closer to mutual success and growth.

Request for partner

A Request for Partner layers in all the key collaborative features of the Request for Solution method but adds a critical dimension: It stresses the importance of finding a supplier that will be a good “fit” for their organization. The definition of “fit” depends on the needs of the buying organization but often includes evaluating suppliers on facets such as cultural compatibility, commitment to a transparent pricing model, or flexibility. 

The Request for Partner process is best suited when the buying organization is seeking a highly strategic and collaborative longer-term business relationship. It is an excellent choice for complex outsourcing deals where the buyer and supplier will need to work closely together, and it is essential the parties view teaming, collaboration, and transparency through the same lens.  

From the outset, a Request for Partner process emphasizes a long-term perspective. As part of the process, the buyer hosts collaborative workshops where the buyer and supplier’s team members not only collaborate on the potential solution (like the Request for Solution) they also collaborate to incorporate formal relational contracting techniques such as developing a shared vision, guiding principles, and governance mechanisms.

Because the Request for Partner process is used for your most strategic supplier relationships, you should be ready to invest the proper amount of stakeholder involvement into the process to ensure you can yield the highest long-term rewards if successful.

Why you should make the shift to collaborative bidding

Traditional specification and price-focused approaches have been effective tools in enabling competitive pricing for tens — if not hundreds — of years. To date, organizations and software technology firms have invested millions of dollars perfecting highly competitive bid process to get to a successful transaction quicker and cheaper. But research shows that transaction-based approaches have limited ability to create value for an organization and only work optimally when there is abundant supply and low complexity where the “market” can correct itself.

Why do transaction-based approaches fall short for more strategic relationships? It is because they create a catch-22: Both buyers and service providers want innovation but neither wants to make the investment necessary to do so due to the transactional nature of their relationship.

Alternative delivery models such as Vested outsourcing are helping organizations break away from a transaction treadmill by creating highly collaborative win-win relational contracts with shared risk/shared reward economic models incentivizing suppliers for investing in mutually defined desired outcomes that create value for both buyers and suppliers. But getting there requires buyers to bring collaboration into the actual bid process to unlock the potential of how the parties can create value.

The bottom line

Complex sourcing initiatives demand nuanced and collaborative bidding strategies. If you want more collaboration from your suppliers, try starting with a more collaborative bid process.