Analyst insight: Many organizations are shifting to more collaborative supplier relationships, especially with their complex, strategic relationships. This is a great trend, but it won’t really take off until those organizations embrace new, progressive collaborative processes for competitive bidding. 

There’s a shift occurring in sourcing to more strategic, performance-based and “vested” outcome-based supplier solutions. This has created a need for more sophisticated and collaborative request-for-proposal (RFx) approaches that seek to buy “solutions,” “strategic partnerships” or “alliances.”

As organizations move from commodity-focused “buy” sourcing business models to more value-based sourcing business models — like performance-based and vested agreements — they factor in these attributes: 

• Emphasizing buying “solutions” vs. “technical specifications;” the award criteria are more about the supplier’s “bid” than the “bidder” 
• Viewing suppliers as strategic “partnerships” and “alliances” — versus a simple supplier of capabilities — with the focus on longer-term, flexible, “win-win” deal structures 
• Using more collaborative and transparent approaches during the bid process 
• Considering suppliers’ “cultural fit” in addition to capabilities 
• Shifting away from transaction-based sourcing business models to output-based (performance-based) and outcome-based (vested) sourcing business models 

While some consulting firms are beginning to push for more collaborative approaches, their methodologies are proprietary. Proprietary solutions prevent buying organizations from learning and using sound methodologies. 

This “Request for Partner” process, developed by the University of Tennessee, uses some of the major concepts found in various request-for-solution methodologies — and formalizes them into an open source methodology.

No one approach is better than the other. Rather, the key is to know when to use which approach. Here are some recommendations: 

The Best Value PIPS (Performance Information Procurement System) process is a good, low-cost and fast approach for picking a supplier for a performance-based contract or preferred supplier relationship when the technical aspects of the solution and cultural fit are not important for the buying organization. 

A Competitive Dialogue process is apt when the technical solution is important and joint solutioning and tailoring is essential — but cultural fit is not an issue. 

A Competitive Dialogue Plus approach is best suited when the buyer has time and when the service providers do not mind a lengthy and costly bid process. 

The Request for Partner is the most effective approach for most performance-based, vested, and investment-based models, and it’s ideal for highly complex and integrated supplier relationships (e.g., strategic outsourcing relationship that will yield significant dependency and “lock-in”). A key benefit of the Request for Partner over the Competitive Dialogue Plus approach is that it reserves the costliest solutioning for when there is only one service provider. Where the results are unsatisfactory, the buyer can fall back to the second-ranked service provider.

Restructuring an existing agreement is an excellent low-cost alternative when a buyer is already working with a highly capable supplier they trust but wants to explore other solutions or approaches. (Here's one example from Dell and Genco.)

Outlook

As organizations mature and their approaches to sourcing become more sophisticated, new competitive bidding methods are needed to incorporate innovation into complex sourcing initiatives. Bringing collaboration into the bidding process enables buyers to work with suppliers to find both solutions and potential partners — not just a price.

Kate Vitasek is a faculty member at the University of Tennessee’s Haslam College of Business Administration.