The Cost of the RFI/RFP process

October 20, 2022

The RFI/RFP (Request For Information / Request For Proposal) process still remains one of the most used purchasing techniques of today’s purchasers.

Choosing the RFI/RFP process to acquire goods and/or services can bring many advantages such as reaching out to a large number of potential suppliers, putting pressure on the current supplier, receiving detailed proposals, maximizing savings, etc.

Even though this technique has proved its effectiveness in supplier selection, it has a main flaw which is the duration of the procedure and as Benjamin Franklin said, Time is Money.

The time-consuming aspect of the RFI/RFP process can considerably lower the speed-to-market of a product or service, and cause an economic impact in the project delivery.

This economic impact, or profit loss, is also known as “Cost of Delay” (CoD).

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This chart is a basic representation of a product/service lifecycle.

The yellow line represents an on-schedule introduction.

The blue line represents a delayed product introduction.

The reduced peak between both lines plots an area that can be defined as the Cost of Delay.

It should not be neglected, as its financial impact can be considerably high.

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To calculate the Cost of Delay, a company needs to estimate what monthly profit can be achieved with the product/service that needs to be launched. The monthly profit loss due to late entry can be considered as Cost of Delay.

The Cost of Delay divided by the duration of the project, also known as CD3, is an important factor to consider, as it can help prioritizing projects.

CD3 can be calculated as such:

Prioritize: by FIFO (First In, First Out)

Prioritizing the projects by the FIFO technique will result in a considerable profit loss for the company.

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Prioritize: by Monthly profit

Prioritizing the projects by the monthly profit they will bring to the company will still result in an overall profit loss.

Prioritize: by CD3

Prioritizing by CD3 is the best method to lower the Cost of Delay, as this will bring the best result to the company.

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Combining CD3 with RFI/RFP

As the RFI/RFP process generally takes time, it is essential to know the importance of Cost of Delay and the calculation of CD3. The minimal amount of savings justifying the RFI/RFP procedure should thus also be calculated on basis of the Cost of Delay, in order to cover it.

Don’t forget that this only includes the financial aspect of the process, never underestimate the other variables to take into consideration when selecting a supplier.


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