The outcome of a request depends on the request type and the associated questions and/or product lines. However, the outcome of an RFI and RFQ or RFx can be grouped in three types.
- Number of Qualified Suppliers - The main outcome of the eRFx is a short listing of suppliers. The number of qualified suppliers is a determining factor for the buyer's choice of negotiation type and strategy.
- Knowledge of the Suppliers' Start Prices - Knowledge about the entry price level of each supplier will help you determine the right negotiation strategy regardless of whether the negotiations are conducted face-to-face or online via an e-auction.
- Knowledge of Parameters Other than Price - The eRFx will provide information about parameters other than price such as quality differences, service level differences, etc. These parameters must also be taken into account in the negotiations to follow, as they have an impact on the suppliers' prices. This information is critical in relation to setting up the most appropriate negotiation process.
The main purpose of the request is to identify the group of suppliers who are both able to supply the product or service in a satisfactory way, as well as supply it at an attractive price. The main outcome of an RFx will be a list of qualified suppliers with whom the buyer can continue negotiations.
The number of qualified suppliers will have an impact on the buyer's options during a negotiation. This will determine the buying company's buying power compared to the suppliers' selling power. If a large number of suppliers are qualified, and they have submitted competitive prices, the buyer might decide to continue negotiations using an e-auction. Improved competition will drive down product cost. L
If only a few suppliers are qualified, and the submitted prices are widespread, the buyer might decide to continue negotiations face-to-face in order to find out if an attractive agreement can be made with the most competitive suppliers.
Another major outcome of the eRFx process is knowledge about each of the qualified supplier's price level. After the RFx, the buyer must determine how to proceed in negotiations with the qualified suppliers. It is important for the buyer to know the price in which each supplier enters into negotiations in order to plan the negotiations in the most beneficial way. The RFQ bids will help the buyer determine whether it is most beneficial to proceed with an e-auction or if it is better to conclude the negotiations face-to-face.
Close Price Structure
If the suppliers' RFQ bids are close, consider continuing negotiations in an e-auction as the direct competition between suppliers will drive down costs.In some cases, suppliers submit RFQ bids that are 0 - 10% away from their bottom price level, and in other cases suppliers submit prices that are the absolute best offer.
Scattered Price Structure
If the suppliers' RFQ bids are far apart, consider face-to-face negotiations using traditional negotiation tactics in order to convince suppliers to reduce their prices. If the buyer does not feel confident about getting improved prices in a face-to-face negotiation, it might be worth considering to continue negotiations using one of the alternative e-auction formats where the dynamics are driven by the e-auction and not supplier bidding.
Parameters in the RFP
When the buyer starts further negotiations with the qualified suppliers, it is important that these negotiations are conducted on the Total Cost of Ownership. To ensure that the suppliers are evaluated on total cost, the buyer needs to know the exact terms and conditions for each suppliers bid.
Additional factors could include:
- Transportation costs
- Switching costs
- Quality factors due to differing quality levels
- Conversion factor due to different bidding units (e.g. 300 grams vs. 340 grams)
- Delivery terms
- Payment terms
By including all parameters in the further negotiation, the buyer ensures comparability and transparency in the decision making process.
If the RFI revealed that one of the qualified suppliers can only accept 30 days payment terms compared to the requested 60 days, the buyer has to decide whether 30 days is acceptable. If acceptable, the buyer must consider how this will influence the supplier's total cost.