A number of decisions made by an organization have procurement implications that can dramatically affect the overall cost of making a certain decision. Procurement involves processes like that of choosing a vendor, defining terms of payment, strategic vetting, contract negotiation, and purchasing services and goods. It is related to the procuring or acquiring of all services and goods that are important for an organization.
In the private sector, the process of procurement is considered a strategic-level function that assists in improving the profitability of a business. Not only does it streamline the processes and decrease the overall price of raw materials, but it also allows organizations to identify the best sources of supply. All in all, it is helpful in ensuring a smooth-running bottom line.
In the public sector, high level executives are responsible for reducing the bottom line. Only a few personnel manage the procurement function, which increases the likelihood of corruption in this sector. This is why there is a need to increase the overall output of a business. For example, staff can be trained in order to enhance their efficiency and improve the quality of their service, as a result of which, output can be improved.
With the passage of time, a number of terms have been introduced around tender consulting, proposals, and big management, including a number of acronyms associated with procurement. Not many businesses are aware of these terms, but being an entrepreneur or owner of a small business, if you wish to effectively manage the buyer’s readiness to purchase, it is important to know their purposes. Examples include the RFI (Request for Information), EOI (Expression of Interest), RFP (Request for Proposal), RFT (Request for Tender), and RFQ (Request for Quotation). Each one of these terms serves a special purpose in the procurement function.
EOI and RFP are the most frequently used terms in the procurement function, and each of them has a specific role in streamlining the entire process. Many individuals confuse these terms while executing the processes. In order to get a better idea of how they differ, it is important to know what these terms mean.
EOI (Expression of Interest)
Expression of Interest (EOI), also known as the Registration of Interest (ROI), has a similar function as the Request for Information (RFI). It is used as a screening process in the initial stages of procurement so as to create a formal and more specific Request for Tender or RFT (a later stage in the procurement function). When a company releases an EOI, it is required to estimate the ability of a market to supply or collect more information before moving to RFT. A company making a purchase is unlikely to appoint a contractor via EOI. For that to happen, a process has to progress until it reaches RFT.
EOI is a type of open tendering that enables any company to come forward. It gives rise to a tough competition and provides the benefit of allowing new and potential suppliers to secure their work. However, in construction contracts, it is largely criticized for attracting suppliers that are not suitable for the contract, which results in a waste of time, money, and effort.
The advertisement that requests an EOI must include a description of the contracting body, description of the contract (such as budget and scale), type of contract, procurement route, terms and conditions, submission address and deadline, and other details (including contact information, description of the organization, technical capacity and related experience, availability of staff and their experience, etc.)
RFP (Request for Proposal)
On the other hand, RFP, also known as Request for Offer (RFO), is a document that can easily be modified. It is mostly used when a purchaser is looking for a solution-based response to fulfill its requirements and in cases where other factors (excluding price) are central to the evaluation of each offer. It is also used in situations where no clear solutions or specifications are available, and the purchasing department is looking for a number of innovations and options. These instruments are more flexible than the RFT (which normally has well defined solutions or specifications). The RFP is mainly used in the professional services where a solution cannot be defined easily.
An RFP contains background information on the organization and its line of business. The request consists of specifications that explain the solutions the organization is seeking. Moreover, it also includes the evaluation criteria for how proposals are graded, a statement of work that describes the tasks to be performed by a bidder who wins the contract, and the timeframe in which to finish the project.
An RFP is usually created because of the complex nature of a project. Companies can benefit from various bidders when looking for a well-integrated solution from a number of suppliers. For example, if a company is planning to switch its business from a paper-based environment to computer-based environment, it may request a proposal for software and hardware in addition to the training that is required for installing and integrating new systems into the business.
In the public sector, entities may issue an RFP for creating an open competition in order to bring down the cost of a solution. However, it must be noted that the RFP closest to the specifications may not necessarily be the one with the lowest price. When accepting a proposal, companies must carry out a cost benefit analysis to make sure the cost does not out-weigh the benefits.
Following are some of the differences between EOI and RFP:
- Different Levels of Procurement
EOI is often executed at the initial level of procurement. It can be released in cases where the purchaser is slooking for industry input in order to scope out the requirements that would eventually go in the market in later stages. As already discussed, the RFP is normally the next step; wherein, the purchaser seeks solution-based approaches for the delivery of product or services.
- Stages of EOI and RFP
EOI usually has multiple stages. It is used to shortlist prospective vendors or suppliers before seeking comprehensive bids from tenderers that are shortlisted. On the contrary, the RFP can either have a single stage or it can have multiple stages.
- When are EOI and RFP used?
EOI is used in cases where the information required (from tenderers) is specific, but there is no surety as to whether a supplier will be able to supply services and goods as per the requirements. Moreover, in cases of EOI, purchasers do not have sufficient information to compose a detailed request. On the other hand, an RFP is used in cases where the requirement is properly defined, but a company is looking for a flexible or innovative solution. In other words, a purchaser looks for solution-oriented submissions to fulfill the requirements.
It is very important to be aware of the different levels of procurement processes in order to make effective decisions through the systematic flow of information. Having a clear understanding of these terms and why they are used in the process enables a company to streamline its processes and gain deeper insight into the entire procurement function.
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