The Request for Information (RFI) should be an integral part of your “procurement tool-box”. However, the RFI is often overlooked and underutilized because it is misunderstood. Many confuse the purpose, use and intent of the RFI with the more popular Request for Proposal (RFP). Failing to recognize when an RFI is the more appropriate procurement tool can lead to confused deals and results that do not meet expectations.
As the name implies, an RFI seeks information from potential suppliers regarding their products, services and capabilities. It is a general information-gathering device, in contrast to the RFP, which is focused on obtaining specific information regarding a desired solution. When employed correctly, the RFI can be used to effectively complement an RFP and assure that the overall procurement process delivers a cost-effective solution that meets the defined business requirement.
USE EARLY IN THE PROCESS
The RFI is most effective when it is employed early in the procurement process because it is focused on information gathering. The RFI step should be considered an essential part of the “homework”. As we will discuss later, the RFI is most effective when used as a requirements-definition tool and to qualify potential suppliers. It can also be used as a posturing tool to help place you – the customer – in a position of strength.
The RFI communicates existence of a formal procurement process, the presence of competition, and the importance of a timely response if the supplier wants to “stay in the game”. Failure of a supplier to take your RFI seriously should result in their elimination from further consideration. If a supplier is not interested in providing information and assistance in the early stages of a deal, then he will be even less inclined to help after the money has changed hands.
CLARIFY AND DETERMINE REQUIREMENTS
Many projects begin without a clear set of requirements or only a generalized concept of the intended solution. For example, you may be looking for an electronic commerce solution to improve operations but are not sure whether to use a traditional EDI (electronic data interchange) solution or an Internet-based e-commerce solution. The RFI is the appropriate tool to help identify various solutions that are available in the marketplace. It will help you understand the differences, strengths, weakness, and costs of the various alternatives.
The requirement-definition phase is one of the most difficult and critical project steps. Ill-defined requirements often lead to unsuccessful projects because the chosen solution failed to fulfil the business need. The procurement team can use the RFI to analyse the marketplace alternatives and, in the process, refine and develop actual project requirements. Most suppliers will gladly assist in helping to define requirements. In fact, they will be glad to help because it is a great opportunity to move your requirements toward a solution that only they can provide, thus eliminating competition early in the procurement process. Using the RFI as a requirement-definition tool will leverage supplier resources to assist you. The risk of unknowingly developing supplier-specific requirements will be mitigated because input has been solicited from multiple suppliers.
The RFI is also an effective tactic to defend against the “requirements ploy” so often used by suppliers. When a supplier offers to provide resources to help determine requirements at no charge, you can accept their offer by issuing an RFI.
QUALIFY POTENTIAL SUPPLIERS
A well-written RFI can also be used to solicit information about potential suppliers in order to qualify them for participating further in the procurement process for the deal at hand. If the supplier qualification step is skipped there are two potential risks. There is the risk of financial instability and performance risk. The supplier qualification process should address both risks.
The financial stability risk can be addressed by solicitation of annual and/or quarterly financial reports. All publicly held companies must file financial reports. Information is also readily available from reporting agencies such as Dun & Bradstreet. Bank references should also be requested. If the supplier is privately held they may balk at providing such information. It is important to hold your ground and press for the information. Be sure to have your financial department review the reports and information to render an opinion and identify any potential issues/risks. The degree of financial stability will also drive your negotiation strategy in terms of the protections that may be required.
A financially stable supplier may have a performance risk. Asking specific performance-related questions will provide insight into their experience providing the product or service. (These questions are described below under Structure and Content.) Research houses such as Gartner and Giga are also great sources for obtaining supplier performance information. The RFI is a good tool to identify, isolate and eliminate potential suppliers who may have a performance risk.
EFFECTIVE POSTURING TOOL
Publishing an RFI to potential suppliers presents an excellent opportunity to begin negotiations because the negotiating process actually begins with the first supplier contact. Additionally, the RFI sets the tone for the supplier relationship and the particular procurement project at hand. The RFI can be used to demonstrate to potential suppliers that you do have a procurement process and are experienced using it. Issuance of an RFI puts you, the customer – the one with the money to spend – in control because you are establishing a process and the rules to be followed. Establishing and communicating your commitment to process and a competitive environment produces strength and leverage. You have developed a strong position from the outset making it is much easier to negotiate when the time comes.
FORMAT, ORGANIZATION AND CONTENT
Because of their information-seeking nature it is preferable to structure RFIs in a question-based letter format. The letter format and absence of a rigid outline fosters openness and information exchange. The customer can provide information regarding process and a description of the business problem to be solved. The potential suppliers can provide information regarding their qualifications by answering specific questions.
RFI letters are generally organized into four sections. The first section provides a general overview of the project and procurement-process information. The second section describes the customer’s business problem requiring a solution. The third section contains questions designed to evaluate the potential supplier’s financial stability and qualifications. The fourth section contains questions designed to determine the supplier’s understanding of the business problem and ability to provide solution recommendations. Keep in mind that RFIs are designed to collect information. They are not a tool for soliciting proposals for a specific solution.
The first page of the RFI letter should contain an overview of the project contemplated and the desired outcomes. Immediately following the project overview there should be a description of yyour procurement process, identifying the major milestones and associated dates. Finally, the general overview section should identify the RFI response due date and to whom it should be addressed.
A description of the business problem should follow the project overview and provide enough information for the potential suppliers to gain an understanding of the problem/issues being addressed by the RFI. An effective RFI provides a discussion of major process activities, key issues, constraints, and desired outcomes.
Financial stability is an important issue. Unless you are dealing with a large, well-known name, skepticism should prevail until a potential supplier proves financial stability. The following information should be requested in the RFI.
• A copy of the most recent annual financial statement;
• Bank references (at least two);
• General overview of the company, its history, capabilities, and markets served;
• Overview of the company’s organization, identifying key executive personnel;
• Statement of performance commitments, guarantees and remedies that will be offered if selected as the supplier.
To ascertain the potential supplier’s understanding of the business problem, the following information should be requested. A supplier’s ability to provide complete information is contingent upon the information provided in section two of the RFI. Be sure to adequately describe the business problem to be solved, constraints and the desired outcomes.
• Ability to provide a complete solution; identify specific capabilities to achieve the desired outcomes;
• Previous experience providing solutions for customers of similar size, scope, and requirements;
• Specific client references;
• Identify problems encountered in delivering similar solutions;
• Identify benefits obtained for customers;
• Identify risks of implementing the solution and strategies for minimizing each identified risk;
• High-level estimate of the time required developing, delivering, and implementing the solution;
• Cost estimate range;
• Any unfulfilled desired outcomes.
Results obtained from an RFI can be used to help make a project “go, no go” decision. Information provided will identify availability and viability of solutions, cost estimate ranges, and risks. While there are many other considerations relevant to the project “go, no go” decision, the RFI can be a useful tool for collecting some of the required information.
Additionally, the RFI can serve to validate decisions made to proceed with a project and provide an additional level of detail for development of project requirements. The RFI will provide an overall sense of what solutions are available in the marketplace to solve the particular business problem.
RFI AND RFP ARE COMPLEMENTARY
The relationship between the RFI and RFP is a complementary one. Once the project “go, no go” decision has been made, information developed by the RFI can be used to seed the solution requirements section of the related RFP. There is now a more clear understanding of project scope and requirements, as well as a list of qualified suppliers. Leveraging the information-gathering focus of the RFI will lead to a clear and concise RFP that articulates the business need.
RFIs and RFPs are not mutually exclusive. The danger lies in the assumption that, with the information obtained from the RFI, one can proceed directly to negotiation and supplier selection. The RFI merely identifies options for proceeding and qualifies some potential suppliers. To be effective, the RFI must be used as a tool that helps the procurement team gain knowledge, formulate ideas and concepts, and develop a cohesive set of project requirements.
David Whitinger is a Senior Consultant with consulting firm ICN Inc., of Winter Park, Florida, which specializes in technology procurement. ICN’s Web site is http://www.dobetterdeals.com