How Much is Your Organization Spending on Its Procurement Process

Have you recently evaluated the effectiveness of your organization’s procurement process? When products or services purchased do not properly align with your business goals, it can be costly. A study conducted by IDG stated that technology purchases tied to business typically involve 15.5 people across 5.8 different functions. However, most organizations are not equipped with good tools to manage their RFP process which typically leads to low stakeholder engagement to minimize both the complexity and cost of the process.

A collaborative process that includes a cross-functional team is critical to achieving good purchasing outcomes. This engagement increases transparency, which ultimately leads to more efficient and innovative solutions for your organization. While bringing 15.5 people across 5.6 different functions is likely going to help you drive an optimal outcome, the cost of doing so might be prohibitive for many organizations.

Coordinating calendars becomes increasingly challenging as the number of stakeholders increases. Those ever-growing email threads—with attachments galore—pose yet another problem. Inadequate tools can result in a process that is so onerous and expensive, it can even undermine the ROI benefit of choosing the ideal vendor. To see how this might happen, let’s put some numbers around it.

Let’s imagine an organization is looking to procure around $500,000 in IT services from a vendor. The sourcing team involves all 15 stakeholders and each stakeholder commits to an average of 10 hours per week over the next 10 weeks. If the average employee at this company makes $75,000 per year and you include additional expense such as payroll taxes, benefits, and office space; we are probably looking at close to $100,000 per year in loaded costs.

The surprising cost of procurment

$100,000/year x 15 people x 20% of 1 year x 25% of weekly work hours = $75,000.

$75,000 represents 15% of the total budget that was allocated for this sourcing project, which increases the threshold to generate positive ROI. However, $75,000 only constitutes part of the expense. It is important to realize that when stakeholders are engaging in the procurement process, they are not focused on their primary job. To get a sense of the cost, let’s assume that 13 of the 15 people involved are stakeholders who are not in the procurement department. The opportunity cost associated with their participation in sourcing would be $65,000.

As an organization, what are you supposed to do? It seems as if one option is to have procurement run this process themselves. By doing so, however, you put your organization at risk of purchasing products or services that do not align with business goals. It also causes a common disconnect between those who are purchasing the products or services and those who actually use them. On the other hand, if the cost to run an RFP for a $500,000 purchase is $130,000, there is a distinct possibility that there will be negative ROI even if the ideal solution is selected.

Are you wasting time and money on an ineffective sourcing process? Check out the cost associated with engaging internal stakeholders in a manual procurement process:

  • Take the salary of each stakeholder
  • Multiply that number by the number of stakeholders involved
  • Multiply that number by % of weeks dedicated to sourcing over the course of the year
  • Multiply that number by % of weekly work hours dedicated to the sourcing process

If you are not seeing the return, it is time to consider implementing RFP management software. RFP management software optimizes outcomes for vendors and buyers and further improves ROI by streamlining the process. It will improve the overall quality of purchasing decisions through the consolidation of information, increased stakeholder engagement and time savings. Set up a free account at Vendorful to see how an RFP management solution can improve your sourcing process.

Procurement impacts teams

How the Purchasing Process Impacts Teams Outside of Procurement

Even in organizations that have procurement departments and a formalized purchasing process, the ramifications of any purchase primarily impacts other internal stakeholders. Indeed, the stakeholders are users of the products or services and are left to deal with the consequences of sourcing decisions. When the products or services do not properly align with their business goals, it can be costly.

Many organizations are focused on making sure that they don’t overpay, but in the long run, the lowest-cost vendor might not be the right vendor. In fact, choosing the wrong vendor can, in some cases, reduce top-line revenue and effectively negate any savings attributable to the sourcing process.

Historically, sourcing and procurement were viewed as a back-end operational functions. However, this has changed more recently with these processes being viewed in a more strategic light. When it comes to forward-thinking organizations, procurement now has a seat at the executive table, helping to maximize efficiency and cost savings. While this constitutes significant progress, it isn’t yet pervasive. In many organizations, there still remains a disconnect between those who are purchasing the products or services and those who actually use them. 

Procurement impacts teams

Good procurement practices deliver smiles!

The costs associated with a bad purchasing process flow show up in places beyond the balance sheet; stakeholders who are saddled with the consequences of a bad process can grow frustrated or lose motivation. And even the best employees can have their performance undermined if they aren’t given the right products or services to work with.

Winning Influence of Key Stakeholders

By engaging a cross-functional team in the purchasing process, you’ll have the best people assembled to handle issues and concerns that can affect the entire organization. Team members can come from different areas such as IT, marketing, sales, R&D, administration and finance. It is critical for organizations to identify key stakeholders—regardless of departmental affiliation—who can offer informed opinions and have “skin in the game” as it relates to purchasing outcomes.

As stakeholders start to participate in the sourcing processes, they become more invested in the process. Engagement with teams outside of procurement increases transparency and internal collaboration, which ultimately leads to organizations finding more efficient and innovative solutions that benefit all parties. These benefits include:

  • Deeper understanding of requirements
  • A better view into the ramifications of the decision, including identifying what other (especially non-obvious) teams will be impacted by the purchasing decision
  • Ability to leverage more subject matter expertise in the evaluation/sourcing process
  • Better outcomes and improved ROI

Empowering Stakeholders Through Technology

Overall, increasing stakeholder engagement in your purchasing process improves the quality of evaluations and ultimately drives better ROI. However, ensuring simple and straightforward interactions with internal stakeholders and external suppliers requires the right technology. Technology and automation play critical roles in ensuring that your process can scale as your organization grows and its requirements expand.

Engaging a cross-functional team will drive business success, but how will you collaborate with all the different stakeholders in your organization? You need to have the proper tools in place. The right solution not only drives engagement but increases accountability and transparency for purchasing departments. Vendorful’s RFP management software allows you to solicit input regarding requirements, leverage subject matter experts, open up the sourcing process to the stakeholders who will be impacted, surface discrepancies in the evaluation, and build consensus.

Are you interested finding the right solution to help you streamline your purchasing process? Sign up for Vendorful’s online CRM software free trial to see how an RFP management solution can improve your sourcing process!

RFPs can be stressful

Top 3 Benefits of Implementing RFP Management Software

The request for proposal (RFP) process enables buyers to compare features, functionality, and price across potential vendors. It is a crucial component of the procurement process. Accordingly, developing an effective RFP process creates alignment and streamlines the procurement process for buyers and vendors alike.

However, despite innovation seemingly permeating all facets of commerce, the corporate purchasing process has remained largely unchanged. It’s not surprising then, that when a process is complex and/or challenging, people are loathe to engage in it. The data suggests that this is the case with RFPs. In fact, a study conducted by Accenture, indicated that under 50% of spend is managed professionally. Many organizations skip the RFP altogether, relying on ineffective sourcing processes that lead to miscommunication, poor/unknown ROI or purchases of products and services that do not align with their business goals.

Unfortunately, even organizations that adopt best practices for procurement often suffer for their diligence. Indeed, the most common way RFP library management systems are handled is via ever-growing email threads with Excel and Word documents attached to them. While that method has few enthusiastic supporters, it beats some of the alternatives, which includes:

  • Shipping responses on a thumb drive.
  • Firing up the fax machine.
  • Printing, binding, and mailing physical copies.

Do you rely on any of these for your sourcing process?? Or worse yet, does the overhead inherent in these methods prevent you from running a process at all?

It is likely time to reevaluate your current workflow and tools in order to save time and money, as well as to avoid operational inefficiencies throughout your organization. RFP management software optimizes outcomes for both buyers and vendors, improving the overall quality of purchasing decisions.

Check out the top three benefits of implementing RFP management software: 

1. Consolidation of Information

If you are dealing with sourcing projects, it is likely very difficult for you to keep everything organized and at your fingertips while using outdated technology. Ensuring that all of your information is centralized and organized is game changing. Papers and email can often get lost or buried in a bulging inbox, making it difficult to determine:

  • Which of the invited vendors has/hasn’t responded?
  • Are the stakeholders able to access all of the information they need?
  • How do vendor responses compare to each other?
  • Where are all of the attachments the vendors sent with their responses?

Managing the cascade of information from your RFP process in a single location is the best way to make sure that everyone involved in the process has access to the data and documents they need.

2. Increased Internal Stakeholder Engagement 

While procurement departments may drive the purchasing process, stakeholders are often the group that determines which vendor ultimately gets selected. However, rounding up people to participate in a sourcing effort has been compared to “herding cats.” It is clear, though, that increasing stakeholder engagement in the RFP process improves the evaluation process and ultimately drives better ROI. A good RFP software solution should make it easy for team members across the organization to participate in the purchasing process, driving increased engagement and therefore better outcomes. RFP management software allows you to:

  • Solicit input regarding requirements, market info, and more.
  • Leverage subject matter experts for key parts of the evaluation.
  • Open up the scoring process to the stakeholders who will ultimately be impacted by the vendor selection.
  • Surface discrepancies and build consensus.

The right tool will not only drive engagement, but will also increase accountability and transparency for purchasing decisions across departments.

3. Time Savings

Time is money, particularly when engaging in a procurement process pulls stakeholders from doing their primary job. By reducing the time stakeholders need to invest in the RFP process, organizations save money. Evaluate how long your current process is taking by thinking about:

  • How much time does it take to organize all of the vendor responses for distribution to stakeholders?
  • What happens if it needs edits?
  • Is the process itself optimized for simplicity and speed?

Absent the right tools, every step of the RFP process can introduce costly delays and confusion.

By leveraging RFP management software, organizations that suffer from low levels of spend under management can position themselves to turn things around. At the same time, organizations that have implemented the right processes can benefit from newfound efficiencies and further improve ROI by implementing RFP management software. It’s never been easier to do things the right way.

Are you ready to reevaluate how you handle procurement within your organization? Sign up for a free account on Vendorful to see how an RFP management solution can improve your sourcing process!

The Vendor Dating Game (Corporate Purchasing is Broken)

Matchmaking is a big business. Even if we limit the market to online dating services in the United States, we’re looking at a market that generates roughly $2,000,000,000 per year. In a given year, over 90% of American singles use online dating services. For the vast majority of people, finding the right romantic partner is an incredibly important endeavor.

While actual in-person dates may still play the deciding role for assessing chemistry, moving the “partner discovery process” to an online system where potential suitors can be filtered by specific attributes has radically changed the way people find their matches. You like tall? Short? Athletic? Literary? Religious? Non-religious? Never before has it been so easy to target the person who — at least “on paper” — is right for you. And since the Internet has made it so easy to aggregate huge numbers of people, online daters don’t identify a single persopost-imgn, but rather a sizable cohort of individuals who meet a particular set of criteria. Then, and only then, does the dating begin?

We’re not talking about a single date here. No, we are talking about dating — a process that results in high highs, low lows, and amazing stories for your friends. (“OMG, his picture must have been ten years old!” “She kept texting her ex and then would laugh maniacally.”) The idea is to make sure that the person to whom you will commit is a good match for you. I mean, you’re not seriously going to stop looking after you meet the first person. So this begs the question, how many people should you meet? When is it time to settle down? Fortunately, some romantic mathematicians have invested time into solving this problem for us. The most common suggestion is that you shift your mindset to commitment after you’ve gone through 37% of the pool of potential mates. (If you want to actually see the math, take a look at “The Sultan’s Dowry Problem.”)

If you’re wondering why you’re reading about online dating on a b2b website, you are probably not alone. However, since you’ve stuck around this long, you are about to be rewarded. This is the part of the post where we’re really going to ratchet up the sexiness factor. We’re going to shift from searching for romantic partners to searching for the best vendors for your business. We’ll pause for a moment so you can catch your breath….

Vendor selection should be easier than dating. There are all sorts of places where you can find very detailed information about the vendor. It’s not considered inappropriate to contact the vendor’s other “conquests” to inquire about the experience. (In fact, most vendors will encourage you to do so; it’s corporate polyamory.) And you’re not penalized by a potential future vendor for “playing the field” while you move toward a decision. Given all of these opportunities to optimize the outcome of the vendor selection process, why is it that ”50% of buyers choose the vendor that responds first?” We call this the “first touch problem.”

The problem can manifest itself repeatedly as businesses have vendors of all sorts, from landlords to office supply companies to cleaning services. IT spending, just one component of a business’s needs, represents $3.5 trillion (yes, that’s trillion with a “t”) globally. If it’s too hard to wrap your head around that number, let’s focus on something far smaller, corporate travel for US companies. Are you ready for it? That relatively small part of corporate spending is still a $300 billion market.

Let’s circle back to the question of why businesses are so receptive to the people who contact them first. The answer: it’s easy. If you’re an employee in a small or medium-sized business (SMB), you likely have a full plate with your day-to-day tasks. In many (most?) cases, there’s not going to be a procurement department. There might not even be a formalized purchasing process. Your focus is solely on doing your job, and if you need something that’s going to help you do it — cloud hosting provider, plane ticket, rental car, hotel room, CRM system, or anything else — there is significant value in arriving at a decision quickly. Put simply, the most expedient decision might be the right decision when you include the costs of what could be painstaking deliberation. So if you can find something that checks the boxes well enough and get back to doing your job, it feels like a win. Imagine applying the same logic to dating. “Brown hair, college degree, and a non-smoker. I’m all done looking.” Sounds ridiculous, right?

Larger organizations are wise to this problem and have taken steps in an effort to address it. They will typically have a procurement process, which is designed in large part to make sure that vendor selection is well considered if not well orchestrated. In fact, they will often have a whole department devoted to purchasing. In some ways, this can be incredibly helpful. Jane from IT who needs cloud hosting can go to the procurement specialists and let them know what she requires. Ostensibly, Jane is now free to turn her attention back to her day-to-day responsibilities. However, unbeknownst to Jane, she may have made a Faustian bargain. The purchasing department is populated with people who are experts on purchasing and beholden to corporate policy. They are not necessarily experts in cloud hosting. In fact, Jane from IT — the very person who issued the purchase request — is the expert in cloud hosting.

Jane can choose to cross her fingers and fully delegate the purchasing decision to the procurement team, which has two to three weeks to develop expertise in cloud hosting. They’ll use this newly acquired information to

    • select 12 vendors to participate in the RFP process
    • review the responses
    • build a shortlist of 3 vendors
    • enter into negotiations with the finalists
    • sign a contract

It might be tempting for some companies to bring in domain experts to craft the RFP. In addition to adding a layer of cost, the time it takes to identify and engage the experiments can materially impact the outcome of the product. (I know what you’re thinking…. “Issue an RFP to find the domain experts!” Perhaps experts should be engaged to find the experts and so on, creating an infinite loop!) This is a time-consuming process that can take months from start to finish. In certain domains, the world can pass you by at that time.

The CTO of a Fortune 500 publishing company recently hired a consulting firm to come up with a Request for Proposal (RFP) to update their Drupal websites to 6.9. Unfortunately, the RFP took so long that before the firm finished it, Drupal released version 7.0, essentially rendering the whole RFP process somewhat moot. (You can read more here.)

Given the time, effort, and cost it takes to prepare an RFP, procurement teams can forgo doing a lot of the research and simply enlist a likable salesperson from a candidate vendor to provide an RFP to them. And what vendor, when asked to write the RFP to which they will be responding, will say “no?” The problem is that the playing field for the evaluation will no longer be level. In effect, by allowing a vendor to provide the RFP, we come back “first touch problem.” The vendor who provides the RFP clearly has stacked the deck in its favor and is most likely to get to the finish line, no small factor in why the first sales touch wins almost 50% of the time.

If Jane is uncomfortable keeping her fingers crossed for three months, she may elect to participate in the process. Given corporate policy, this might involve her writing the questions for the RFP, selecting the vendors, reviewing the responses, etc. If she is to bring her subject matter expertise to bear, why bother delegating the purchase process at all? She has to do a ton of work and probably wouldn’t get to enjoy the perks of hanging out with salespeople and their flush expense accounts earmarked for dining and entertainment.

We can assign blame to the corporate process, but the process is totally understandable. Organizations want to enforce a policy that compels people to justify purchase decisions. It’s probably more appropriate to blame the RFP, a three-letter acronym that might be more appropriately renamed to the CYA. (If the “first touch” problem isn’t actually being mitigated by the RFP, doesn’t this really amount to a “Cover Your <Ahem>” operation?)

As poor a process as this is for buyers, it might be even worse for vendors who feel obliged to complete RFPs whenever they come in, despite knowing the odds are good that a competing vendor strategically placed the RFP in the purchaser’s hands. Questions vary from RFP to RFP and even when there are similarities, the nuanced differences often make copying-and-pasting a dangerous proposition. Invariably some of the questions seem to be unrelated to the product or services they provide; ad hoc teams of people are often tasked to respond to questions that run the gamut from product/service capabilities to historical financial data to support policies to HR guidelines. All of this time and effort is expended while the vendor expects to close the deal, not on the relative merits of its offering, but because a competitor is sitting in the catbird seat.

Our goal is to fix this. We’re aware that corporate purchasing isn’t sexy (although some companies might be buying Lamborghinis, jet packs, and Dom Perignon in which case…well, sign us up!). But that doesn’t mean it should be this painful. In fact, we think that corporate purchasing should make you feel good. Good that you’ve chosen the right vendor. Good that the process to do so was easy. And good that the product/service that you’ve purchased helps your business. We want you to think of purchasing like a beach vacation ― boring but great. Learn more about our strategic sourcing and vendor management services.