The cool kids use an expression, “RFx”, to cover three different types of solicitation: a Request-for-Proposal (RFP), a Request-for-Information (RFI), and a Request-for-Quotation (RFQ).
The Request-for-Proposal is a document that “solicits proposal, often through a bidding process, by an agency or company interested in procurement of a commodity, service, or valuable asset, to potential suppliers to submit business proposals. It is submitted early in the procurement cycle, either at the preliminary stage, or procurement stage.” Buyers select the most attractive proposal, based upon their scoring mechanism, and then negotiate a contract with the supplier, proceeding to delivery and payment.
The Request-for-Quote is a type of RFP in which suppliers “bid on specific products or services” including price, but also “payment terms, quality level per item or contract length” where the items being purchased are described in depth. “RFQs are best suited for products or services that are as standardized and as commoditized as possible, as this makes each supplier’s quote comparable.” Given the commoditized nature of the acquisition, the buyer may simply sign the terms proposed by the supplier, binding each party to a contract.
RFPs are strategic; RFQs are tactical.
RFPs pertain to more complex projects.
Some buyers conflate the two into something called a tender. A tender is like an RFQ for a complex acquisition in which the winning supplier’s proposal is signed back as a contract, without negotiation.
The key factor is that in either the RFP or the RFQ case, there is the prospect of a signed contract.
This is not true in the case of a Request-for-Information.
“The RFI is a solicitation document used to obtain general information about products, services, or suppliers. It is an information request, not binding on either the supplier or the purchaser, and is often used prior to specific requisition for items. The purpose of the RFI is to gain familiarity with the current market for a particular supply or service and to gather information in a formal, structured, and comparable way. The RFI process may help in the decision-making process by developing a well-conceived solicitation document (RFP, RFQ) and clarifying the competitive requirements.”
It’s a way for buyers to conduct their market research before issuing the RFP (and they should be used for these more strategic purposes more frequently than the acquisition of commoditized goods and services one sees in the RFQ, typically). Buyers want to see who the vendors in the space are and they may want to see which ones are most relevant.
“According to TechTarget, ‘An RFI is typically the first and most broadly cast of a series of requests intended to narrow down a list of candidates.’”
Buyers might issue the RFI to mitigate the risk of picking the wrong supplier, or of asking for the wrong solution. Or, they might not have the resources to get market research from a third-party consulting firm with expertise in the space. Responding vendors might see it as an opportunity to “shape” the eventual RFP in their favor. Smart buyers try to pull out information from suppliers beyond the information they release on their website or in other public marketing material.
In a sense, it’s an opportunity for the supplier to provide the buyer with consulting advice.
In the best case, they’re quick to execute, high-level, and easy for suppliers to answer.
In practice, RFIs can often be maddening for suppliers.
And there is no guarantee that the buyers will follow through with an acquisition.
Whenever you ask for information from a supplier, you are asking them for an investment, a commitment of resources. It takes time to respond to any one of these RFx solicitations. The supplier must decide whether to respond.
They may not respond for a variety of reasons. The RFI could be overly vague. The supplier could have concerns about the security of her response if it is a buyer with whom she is unfamiliar. How does she know that you will not share their response with a competitor? The supplier may feel, for whatever reason, that the buyer has made their decision already and that the RFI is a pro forma exercise in appearing to conduct a process, the so-called “wired” transaction.
She may not think that the buyer is serious about following through with a purchase.
Critically, she may not be aware of the RFI, in the first place. If the buyer feels as if they have to issue an RFI to identify suppliers, it is possible that they may solicit the wrong suppliers, or fail to communicate the request to the right suppliers.
What’s worse from the supplier perspective is that the RFI extends the sales cycle even further.
Suppliers are only going to respond if they think that there will be an eventual purchase and that they have a fighting chance at winning the business.
Otherwise, especially in a tight economy, it’s just not worth their time.
Buyers may feel that they are entitled to this kind of genuflection from their vendors “if they want the business” but buyers aren’t doing themselves any favors. There is a case to be made that they may end up with an adverse selection problem in which the only suppliers who are willing to endure the additional friction and extension of the timeline are the weakest suppliers or the suppliers with the least relevant solution to the problem the RFP is supposed to fix.
The RFI may make it more difficult for the buyer to succeed.
What’s a buyer to do?
In the ideal scenario, a buyer could have relevant market intelligence readily available, either from a database, or from access to other buyers.
EdgeworthBox was designed to give buyers and suppliers ready access to this market intelligence, quickly and inexpensively. We have built what is essentially a “Bloomberg terminal” for RFPs that combines features of financial markets with a marketplace for executing the RFx cycle: a central clearinghouse for administration, a central clearinghouse for data, and social networking tools. Our database is partitioned into a public repository and a private, user-specific repository of live RFPs, historic RFPs, and historic contracts. Buyers can see how other buyers with RFPs in the public repository composed their statements of work, in some cases cutting and pasting the relevant language into a rapidly written first draft of their own RFP. Buyers can also speak with other buyers about their experience in the target market, investigate the marketing materials posted by suppliers on their profile pages, and conduct accelerated questioning of suppliers using the messaging functionality. We call it “network-based sourcing™.” Give us a shout. We’d love to talk to you about making RFPs simpler, fairer, and faster.