By Kate Vitasek
For organisations interested in innovation and growth, it is time to turn to more modern and collaborative bidding methods to unlock the potential of co-creating an optimised solution with potential suppliers.
Every day, hundreds of organisations conduct competitive bids to pick the best supplier to meet their needs. But what happens when they rely on the wrong tools to meet their needs? A common pitfall is the Outsourcing Paradox which is when a buying organisation procures a good or service from a supplier who is 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.
A key reason why organisations fall into the outsourcing paradox is that business leaders emphasise “strategic partnership,” but the procurement continues using a traditional transactional Request for Proposal (RFP) bid process where the buying organisation creates the requirements and specifications and asks potential suppliers to share their capabilities and price for meeting the specification. This dynamic puts the buyer and supplier on opposite sides of the table, with the supplier “proposing” a solution the buying organisation has already outlined in the bid process.
Making matters more complex, many organisations have spent the last decade investing in standardised and automated bidding processes and tools that may reduce opportunities for collaboration. One supplier jokingly stated, “My client wants me to be innovative. Yet they put us through a bid process using an off-the-shelf software package where there is no interaction with the client, and we are given a 300-word limit to answer standardised questions.” While streamlining and automating may be effective in helping an organisation get through the supplier selection process more quickly, for more strategic and complex supplier relationships, it falls short and leads to the Outsourcing Paradox.
So what to do? Organisations should turn to more collaborative bidding methods to unlock the power of co-creating an optimised solution with their potential suppliers as well as help determine which suppliers have a high degree of cultural fit – something essential for highly strategic longer-term supplier relationships.
Collaborative bidding methods are not new. But unfortunately, far too many procurement professionals don’t put them in their toolkit. The University of Tennessee’s research into collaborative bidding methods suggests two methods that stand out as ideal remedies for the outsourcing paradox:
- Request for Solution (RFS)
- Request for Partner (RFPartner)
What differentiates the Request for Solution and Request for Partner process from a conventional Request for Proposal?
Both the Request for Solution and Request for Partner bidding methods upend the conventional Request for Proposal process because they help the buying organisation focus on unlocking value beyond product or service specifications. The central aim? A clear intent for the potential suppliers to create a solution to deliver client-centric output deliverables or more strategic and business-focused outcomes.
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. This should include relevant operational information (including volumes), existing service levels, high-level cost structures or estimated budget, and desired legal requirements.
In effect, the buyer presents the supplier with a puzzle.
Shifting towards a more collaborative Request for Solution model opens the door for an interactive dialogue with potential suppliers and creates more room for suppliers to demonstrate their expertise. Rather than focus on the specification, the buying organisation specifies what it hopes to achieve by working with a potential supplier. This means the supplier isn’t locked into detailed specifications. Instead, they are asked to propose what they think is the best solution to meet the buyer’s needs.
A vital part of the Request for Solution process is asking the supplier to propose a solution unique to solving the buyer’s problems and get it to the desired future state. In short – buyers define the what, but not the how. To facilitate this, the buyer hosts collaborative workshops where the buyer and supplier’s team members collaborate to develop a solution to the buyer’s needs. The buying organisation then selects the supplier based on a broader and value-based supplier selection criteria.
Request for Partner
A key differentiation between a Request for Solution and a Request for Partner is the expressed intent to focus on a sourcing process where the potential success of the relationship is substantially as important as the solution being procured. A Request for Partner layers in all the key collaborative features of the Request for Solution method but adds a critical dimension: the Request for Partner stresses the importance of finding a supplier that will be a good “fit” for their organisation. The definition of “fit” depends on the needs of the buying organisation but often includes evaluating suppliers on things like cultural compatibility, commitment to a win-win mindset, flexibility, willingness to innovate, or risk tolerance.
The Request for Partner process is best suited when the buying organisation is seeking a highly strategic and collaborative longer-term business relationship. For example, a Request for Partner 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 emphasises 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. Supplier selection is based on a combination of the solution and fit.
Because the Request for Partner process is used for your most strategic supplier relationships, you should be prepared to invest the appropriate amount of stakeholder involvement into the process to ensure you can yield the highest long-term rewards if successful. Simply put, you are asking the supplier to put forth their A-game and resources into a potential strategic partnership, so you should too.
Why choose Collaboration over Competition?
It is important to state that collaborative bidding methods are not better than more conventional competitive bidding methods. What is important is to use the best bidding method for your particular situation.
The University of Tennessee’s decade-plus research into strategic sourcing has led to a concept known as Sourcing Business Model Theory. The premise? Supplier relationships fall into one of seven Sourcing Business Models ranging from highly transactional (basic provider models) to highly strategic investment-based models (shared service models and equity partnerships). In the middle are sourcing business models that rely on the supplier having a higher degree of strategic importance, such as preferred providers, performance-based/managed services agreements, and highly collaborative Vested strategic partnerships. These “middle” sourcing models are classified as relational because suppliers are more highly integrated, and collaboration is essential (see Figure 1).
Research indicates a clear shift in strategic sourcing to more strategic, performance-based, and Vested outcome-based supplier solutions. As organisations shift along the sourcing continuum, they should use more collaborative RFx approaches that seek to buy “solutions,” “strategic partnerships,” or “alliances” rather than conventional transactionally focused bid processes.
Transaction-based approaches have limited ability to create value for an organisation and only work optimally when there is abundant supply and low complexity where the “market” can correct itself. As you shift along the continuum, the emphasis changes to include other objectives, such as integration into the buyer’s business process to gain efficiencies and continuous improvements. This means it becomes increasingly important to change your perspective on how you approach supplier selection.
Procurement needs to shift from being “buyers” to “value architects.” Likewise – it is imperative to include a broader group of business stakeholders where the focus shifts away from a purely operational perspective to one where collaboration is essential for driving transformation, innovation, and continuous improvement efforts. Likewise, supplier involvement shifts, with suppliers needing to make the shift from being “vendors” to “solution providers” (see Figure 2).
From Research to Relevance
A great example of the Request for Solution model in action can be found in the Minnesota Department of Transportation (MnDOT). MnDOT relied on a two-step contractor selection process to renovate the I-35 Bridge in Minneapolis. They then down-selected (narrowed down) the potential service providers to five, each of whom was invited to develop a proposal. This two-step approach – (1) Down select and (2) compare – allowed them to give space to the potential suppliers to creatively solve the problem. The best match for the buyer’s needs became apparent in phase two (compare). The MnDOT project illustrates how significantly the buyer can influence the tone of the negotiation. Request for solution models used appropriately in the bidding process invokes a greater stakeholder involvement than the traditional request for proposal approaches.
We find similar success stories from Request for Partner case studies. For example, the Vancouver Coastal Health (VCH) initiative provides another excellent example of the Request for Partner strategy. VCH used a Request for Partner model to look for a strategic supplier relationship for a portfolio of environmental services (EVS) over 34 health sites.
VCH’s Business Initiatives and Support Services (BISS) department, representing VCH and Providence Health Care (PHC), did extensive market research and down-selected three potential suppliers as part of a formal down-select RFQ process. On their behalf, BISS issued a Request for Partner (they called it a Mutual Value Solution Request for Proposal) that allowed three suppliers to participate in highly collaborative solutioning workshops, which ended with suppliers submitting a “concept proposal” within ten weeks on how to best achieve VCH’s environmental service challenges.
Using a Request for Partner enabled VCH to embrace collaboration while still maintaining the rigour of a government-focused bid process.
The Bottom Line
Complex sourcing initiatives demand nuanced and collaborative bidding strategies. While streamlining and automating your bid process may be effective in helping an organisation get through the supplier selection process more quickly, it often does not work well for more strategic and complex supplier relationships. Instead, organisations should turn to more modern and collaborative bidding methods to unlock the potential of co-creating an optimised solution with your potential suppliers and help the buyer determine suppliers with a high degree of cultural fit – something essential for highly strategic longer-term supplier relationships.
About the Author
Kate Vitasek is an international authority on the art, science, and practice of highly collaborative business relationships. Kate’s Vested® business model for highly collaborative relationships has been featured on CNN International, Bloomberg, NPR, and Fox Business News. She is the author of seven books, and her work has been featured in over 300 articles, including Harvard Business Review, Chief Executive Magazine, and Forbes.