This post is a white paper on best practices when planning and executing an RFP (Request for Proposal) for POD print procurement. This is kind of a long dry read, but I think that if you are in the business of buying print, you might find it useful.
Due Diligence
You have to know who the players are that you plan on inviting to the RFP. Take some time to do the research on who the appropriate candidates are. Get down to a short list of players that you have a reasonable expectation can meet the need. No more than seven. Sources of possible candidates and information include at least the following:
- Current partnerships
- Industry connections you already have
- OEM manufacturers of printing and finishing equipment
- Paper companies
- Shipping companies
- Social networking sites like Linked In, Twitter
- Publishers and other print buyers
Stoking the Competitive Environment
1) Float the rumor, in advance, that you will be launching an RFI (Request for Information) and/or an RFP (a more official Request for Proposal). Get this info out to all the players. Include just enough information to indicate that you are serious about the endeavor.
2) Include companies both big and small, so you can begin to see where size, resources, and flexibility matter.
3) In addition to notifying print companies of the impending RFP, notify OEM manufacturers and paper companies too. Ring up the sales people, they know all the players, and information tends to be currency to them. They can help create the buzz.
4) Let the rumor simmer. Give it some time to make it’s way around the industry. Word will spread like wildfire. Let it work it’s way up and down the org. charts at the print vendors. This builds expectation for the RFP and gives the sales guys enough time to build a case for participating.
Preparing the RFP
There must be clear goals for the RFP. Your goals are to satisfy your interests. What are the interests you’re trying to satisfy? They could be:
- Margin & price – is there a specific price point you need to hit to support a customer facing pricing strategy?
- Expansion of global footprint
- Logistics – lower freight costs
- Quality – improvement or maintain the status quo
- Increased capacity
- New Market – are you breaking open a new market (region of the world)
- Support of a prior commitment or future opportunity
Know the answers to these questions going in, and confirm these interests in writing to the Senior Stakeholders and Sponsor. If the interests that need to be satisfied in the RFP are down in writing, measuring success afterwards should be pretty simple.
Here are some tried and true steps that I have found helpful in prepping an RFP:
- Prepare a RFP document that clearly defines what the product is that your procuring. All the specifications need to be detailed and outlined. This document should also outline the time-line and rules of the RFP. There should be a section in this document that outlines the interests you are looking to satisfy through this RFP.
- Prepare a pricing template to be used by all vendors who participate. All vendors should be required to submit pricing under the same currency, if possible. This will enable you to evaluate all the pricing submits, apples to apples.
- Prepare a volume forecast. You will need to have a significant amount of volume to wave around. The bigger the volume, the more competitive the RFP will be.
- Supply an integration document that describes exactly what’s involved in integrating with your company. This is a key point. You only want to negotiate with companies who can actually integrate and do business with you.
- Provide access to sample print files. A requirement of the RFP should be supplying sample books for evaluation. Supply the same titles to everyone, so the comparison is apples to apples.
- Provide a contract template with the RFP. A contract shows the suitors that your are serious about the RFP and not just fishing for pricing. It also give the suitors a chance to look at what the contract requirements are.
- Be very specific about the fact that a red-lined contract response is required to stay in the RFP.
Not sure if Vendor X should be invited?
Prior to launching an RFP, it may be beneficial to request an RFI (Request for Information). This is a useful tactic if you’re not sure if a potential vendor should really be invited to the RFP. Some print vendors will say yes to anything over the phone or on a conf. call. It’s another thing to respond to questions in writing. If you’re unsure of something, the written response obtained in an RFI will usually tell you what you need to know and rule the vendor in our out of the impending RFP.
Execution of the RFP
When releasing the RFP, be sure to include a timeline to the participants. This is important because it’s in your best interest to control the calendar. Do not let the participants control the calendar, because they can use this to their advantage. Some variation of the below table should suffice, adapt as the situation requires:
| Procurement Schedule | |
|---|---|
| RFP Released | Date |
| Clarification Round – Vendor Conferences | Dates |
| RFP response due | by date and time certain |
| Review and evaluation of responses | Date range |
| Extensive contract negotiations & Finalize winner(s) | list as TBD |
| Tentative award announcement | list as TBD |
| Anticipated Contract Start Date | Always leave as TBD |
The timeline will build structure into the RFP’s calendar and keep things moving along at a pace that you’ve already decided works for you. You need to allow enough time for the participants to prepare the first submit, but don’t allow too much time. Three weeks is plenty.
Overall Evaluation of the Responses
Here is some general commentary about evaluating vendor responses overall. These are things to keep in mind during the evaluation process.
- Prepare the RFP in such a way that makes evaluation easy and intuitive. It’s important that it’s a level playing field.
- Make a pros vs. cons chart for each vendor, keep this simple. This can be very illuminating.
- Visit the finalists. Tour the facilities. It’s important to be comfortable with the Senior Mgmt. and customer support staff at a key partner. In addition to all the rest of the criteria, the culture fit is important as well.
- Price is the most important thing, BUT it’s not the only thing. Do not let price be your only decision criteria. If your decision is based solely on price, be prepared to kick the vendor out the door in about 8-15 mos. time, because business relationships based solely on price don’t last. Just trust me on that.
- Never eliminate a vendor from the competition unless you are intentionally trying to send a message to the rest. Less participants means a less competitive environment. However, if for instance, a vendor is going behind your back and trying to gain an unfair advantage on the rest by sweet-talking your CEO – you might want to disqualify him from the RFP, and let the rest know why you did it. Make sure you have the authority to do such a thing though.
- Once you’ve come to an opinion yourself, share your findings with a dis-interested third party that you trust. Do not pollute their mind with your opinion, just lay out the facts for them, the data. See if they come to the same conclusions as you have. This will reveal any biases that you are holding that you may not realize.
Pricing Evaluation
Because you’ve forced all vendors to keep to a uniform pricing template, evaluation should be a fairly straight forward exercise. It is essential that all vendors follow the same format. Print vendors know why you want them all on the same template, and they’ll come up with every excuse under the sun why they can’t in some cases. If they can’t (or won’t) follow the format, simply bar them from the RFP.
During pricing analysis, I’ve found that it’s useful to break down the product offering into buckets and then look that at those buckets individually. For instance, I like to break down the pricing and margins on products like this:
- Commodity BW
- Publisher/Commercial grade color
- Photo products (High end color)
- Mech’l bind
- Hardcovers (non-Photo products)
In your pricing model, be sure to take into consideration how the pricing behaves for at least the following variables:
- Quantity – is the pricing favorable across the board or only at certain qty’s or after a certain qty, relative to others pricing or your benchmark pricing
- Page count – is the pricing favorable on higher pg count books (thicker books) or lower pg count (thinner books)
- Bind Type – is the pricing more or less favorable depending on the bind type
- Product Type – is the pricing really only favorable on certain product types, like photo products for instance
It is a good idea to chart out the vendors pricing against one another so you can see the behavior graphically. This simplifies things.
In addition to the pricing scale, vendors should be encouraged to offer a volume discount pricing schedule. This is an opportunity to get a reduced pricing rate on higher volumes of work. This can be an attractive value add from vendor/partner that you deem as best of breed.
Financial Health & Stability
It is important to understand the financial health of the companies in your RFP. Beyond just plain old “is this a company that is financially solid?”, what you need to find out is how diversified the companies client lists are. Specifically, what you want to know is who are the top customers and how much business do they do with these customers. It is a perfectly reasonable request to ask for an anonymous Revenue Concentration List of each the companies top 10 clients. Something like this:
| Customer Rank | Revenue | % of Business |
|---|---|---|
| 1 | $1,000,000 | 23% |
| 2 | $750,000 | 17% |
| 3 | $725,000 | 17% |
| 4 | $600,000 | 14% |
| 5 | $450,000 | 10% |
| 6 | $250,000 | 5% |
| 7 | $225,000 | 5% |
| 8 | $124,000 | 3% |
| 9 | $124,000 | 3% |
| 10 | $100,000 | 2% |
| Total | $4,348,000 | 100% |
From the above fictional example, you see a company who’s client list is fairly diversified. There will always be a “biggest customer”, but in this case, you can see that the biggest customer is only 23% of the business. This means that 77% of the business is not from the biggest customer, which is very important. This means that this company’s senior management is calling the shots, and not the biggest customer.
Generally speaking, a biggest customer concentration over 35% is a bad sign. It usually means that the company is overly dependent on the income from one customer and not only will this customer “get theirs first” (usually at your expense), but the companies strategy could be affected in a way that only perpetuates this cycle and makes it worse going forward. In addition, if the biggest customer leaves, the financial impact could be so great that the companies ability to invest money back into the business could be severely impacted, making them an undesirable partner going forward.
If an RFP participant is unwilling to share an anonymous Revenue Concentration List, hold it against them; it’s not a good sign. It means they are not proud of the diversification in their client portfolio. It also is a good leading indicator of how “open” this company will be going forward. Open-ness is a good thing, and it’s a sign of good senior leadership at a company. Take points away for not being open, award extra points for open-ness. It is much easier to deal with an open company than a company who holds it’s cards close to the vest. These days, open-ness is the only way to go.
Another important thing to understand is ownership. If the company is a small company (<50 mm) and privately held, be sure you understand who has ownership stakes in the company. It’s a good idea to make sure these people know that their company is participating in an RFP with your company. This will create pressure on those beneath them in the org. chart to win the RFP. A simple email to some of the owners thanking them for their companies participation in the RFP that gets across the message that you are looking forward to doing business with them and being associated with their brand is all it takes.
Negotiation
Negotiation essentially begins during the clarification rounds. The clarification rounds are used as an opportunity for vendors to ask questions to clarify points in the RFP to fine tune their bids. The best formats for this are conference call or email. Answer any questions that don’t compromise your calendar schedule or give a vendor an unfair advantage.
If you have to reveal additional information during the clarification round that was not part of the RFP documentation due to an oversight on your part or just a really good question on Vendor X’s part, make this additional information available to the rest of the participants. Email it to them and let them know that this information was divulged during a clarification round and you are of the opinion that all participants should be aware of it.
During the clarification rounds, make it a point to state clearly up front that interest based negotiation is the way you do business. This is important because the participants may know of other ways to satisfy your interests that you haven’t thought of that can be of high value to you. Remember, price is not the only thing that holds value.
During the negotiations, keep all your options open. Never close the door on an issue and do your best to negotiate multiple issues simultaneously. Actually use the phrase “Nothing’s decided until everything’s decided.” This gives both parties the option, as negotiations move forward, of revisiting issues that have been “un-officially” decided in an effort to try and create more value in light of information was not available earlier on. This is how you expand the pie of value. This tactic also reserves the right for your CFO to take another bite at the apple.
About “Another bite at the Apple”
In my opinion, as a print procurement professional, unlimited bites at the apple (the apple of course being price) has a destructive effect on the relationship with a vendor and your companies reputation. If a you are looking to truly partner with a vendor, the experience they have negotiating with you matters. The participants in the RFP, and the winner, will remember the process and they will have a perception of it. Make no mistake about it – they will tell all of their colleagues. You will build a reputation in the industry. What is the reputation you want out there?
Upon your next RFP, do you want the participants to show up with their ears pinned back, helmets strapped on, ready for a zero-sum game war on price? Or, alternatively, do want the participants to show up with the historical perception that the last time they were in an RFP run by you (or heard about one) that it was conducted in a professional manner, and there was no monkey business, ie. unlimited bites at the apple.
If your reputation is such that you conduct professionally run RFP’s, you will get the best of breed suppliers to show up, and they will come with their best price by the second or third round, because they know the RFP will be over if they don’t. If your reputation is that you will constantly nibble at the price right up to the bitter end, the RFP participants will expect this, and you will rarely get a good price early on. Negotiations will drag on, and you will lose control of the calendar and your leverage will be reduced. In the end, you could end up taking a price that you feel (or know) is not the best that could be had, but because time was running out you had no choice.
So, in short, based on my experience buying print, three pricing submits from a supplier should be enough to get to market price. This is not a hard and fast rule, you have to use common sense. You should have a good feel for market price by this time. If you don’t, you most likely have done something wrong in the due diligence prep or execution phase of the RFP. Or, you (or your companies) reputation has preceded you and torpedoed your effort from the beginning.
Closing it Out & Summarizing the Results
The first thing you want to do upon closing out the RFP is summarize the results in terms of how well the companies interests were satisfied through the RFP. You should be able to refer back to the primary interests that were defined in the RFP document itself.
- Gather together all the pricing information and demonstrate how margins have improved
- Demonstrate how quality has improved
- Demonstrate how service levels have improved
- Demonstrate how the global footprint has improved
- Demonstrate how freight costs have gone down
- Demonstrate how your (unit volume) capacity has increased
- Demonstrate how the business is now in a better position to follow through on a prior commitment or a future opportunity
Once these details are pulled together, you should be in a position to present to Senior Mgmt. your recommendation. The case should sell itself. During this time, you will have already engaged the COO & CEO, as well as the CFO and or SVP Finance in the negotiations, so there should be no surprises and everyone should be basically on board with your recommendation – again, because the case should be selling itself.
Final notification that the RFP is closed
Only after the contract(s) are signed should you send final notification to the RFP participants that the RFP is officially closed. An email or phone call should suffice. If a phone call is in order, it should be followed up with an email so there is a “paper” trail of the notification.
It doesn’t make sense to engage in endless debate with each vendor over why their bid didn’t win; so don’t do this. If they ask why their bid didn’t win, and they probably will, simply recount what the main goals of the RFP were and let them know that company X satisfied all of these concerns in a way that made the most sense and that your company felt that company X was the best fit at this time.
That’s it! I thank you for plowing through this rather long read, and I hope you found at least some parts of it useful for your own endeavors.
