I was recently speaking with an executive friend from a large TMC, and he was sharing that his company has become very selective over the number of RFPs to which they respond. The number of bids they have turned down or "no bid" has increased year over year. Similarly, in speaking with some hotel supplier friends and a meetings technology solutions company, they are saying the same thing — they are consciously turning down the opportunity to bid for business.
What is going on?
It seems that the marketplace suppliers are RFP weary. Factoring in the costs for responding and submitting a RFP, RFI, or RFQ to win new business, or renew existing business, has taken its toll.
The bottom line is this: If suppliers feel they have a fair shot at winning your business, they will invest the time and resource costs to participate in your RFP process. If they review the RFP and the current incumbent longevity with the account, then determine the RFP is just a checklist action to renew with the existing supplier, they will not respond nor participate.
I've been on both sides of the fence as a mega global buyer as well as a supplier. I see the situation with equal pros and cons. In my opinion, in light of the abuses of using RFPs simply to gain leverage over incumbents, I can totally understand why suppliers are RFP weary and skeptical.
Let's review why there is culpability on both sides.
- Cost prohibitive The costs to respond to an RFP-RFI-RFQ are prohibitive, forcing suppliers to become more selective in which RFPs they respond to. The wider net you cast to invite suppliers to bid, the more "no bid" responses you will receive. It's costlier for you, the buyer, as well… because you have more to evaluate.
- Confusion The confusion and misuse on the part of the buyers as to which RFX (RFP, RFI, RFQ) strategy is most appropriate for the sourcing exercise is adding to the collective skepticism from suppliers. If responding to a bid request is not only cost prohibitive but is also lacking in clarity and purpose because the wrong tool or approach is applied, the likely result will be a no bid response.
- RFPs gone wild It is bad enough that corporate buyers annually source hotel programs using RFPs, but add all the meeting RFPs that go out to suppliers daily to the mix, and you can see why it's become so expensive and challenging for suppliers to keep up with volume of requests and negotiations. Furthermore, it's an outdated notion that casting a wider net of suppliers will yield better pricing responses. Piling on in this manner is harmful to the sourcing process, and it damages the credibility for legitimate RFP business.
- Questioning questions Realistically how many RFX questions do you really need to get down to a supplier shortlist? I have seen crazy RFPs with 200+ questions. Depending on the complexity of your program, sometimes there are valid reasons for 100+ questions, especially when dealing with global programs, but most of the time, the law of diminishing returns kicks in here. Rarely do buyers need that much information to get to a shortlist of one to three suppliers. The time to go deeper with questioning is in the follow up once suppliers are shortlisted.
- Already committed Suppliers know if clients are in long-term, committed relationships already. They are wary of those who stay with their preferred suppliers for long periods of time but, because of internal regulations, are forced to go out to bid every 3-5 years. This will yield fewer competitive suppliers participating in their sourcing cycle. Ask yourself, why would a competitive supplier respond to an RFP from such a company when it is clear they have no intention of changing their preferred supplier?
- Upfront transparency It is the responsibility of the buyer to truthfully articulate the real opportunity for a change in suppliers. If the tendency is to stay with the incumbent, then don't do an RFP, do an RFQ. The RFQ allows you to check for baseline pricing information and gives you the ability to use that information to renegotiate your incumbent supplier's agreement. Don't waste the other suppliers' time and money issuing a full RFP when your true intention is really to price shop the competition.
- The volume game Size and corporate branded logos used to matter. Today the larger, more complex and more demanding a program sourcing initiative is, the costlier it is to respond to such a bid. What makes this more confounding is the old negotiating principle that volume is king and warrants a bigger discount. Suppliers are realizing that volume discounting their products and services can harm revenue yield and negatively impact profitability. So, buyers who play the volume game may see more reticence from suppliers than before.
- Inventory at risk Another reason suppliers are rethinking the volume game is (in the case of hotels for instance) that too many volume-based discounts for mega corporate account programs displaces profitable revenue yielding business by reducing valuable inventory. In addition, if one or more of these mega clients moves their business to another supplier, the large gap left to fill can become problematic for sales, leaving the supplier vulnerable with a revenue shortfall.
- ADR can be king Suppliers are realizing the true value of large (not mega), and mid-sized clients who don't have radically volume based discounted rates but provide higher average daily rate (ADR) business and increased RevPar for the properties. This business has not only become more attractive and lucrative to hotel suppliers, but if the clients leave it, is easier to replace them in the client portfolio because there are more similar sized programs in those ranges than in the mega range of buyers.
- Corporate credibility The lack of buyer experience, knowledge and executive level thinking is damaging the credibility of corporate RFPs. I know this sounds harsh, but the reality is the minority of the inexperienced buyers is denigrating the majority's reputation. There are many experienced, knowledgeable and strategic buyers for business travel and meetings/events who take great pride in their programs and sourcing strategies.
- Supplier experience On the converse, I have also witnessed too many inexperienced, tactically price driven buyers enter our industry making rookie mistakes and bad judgments in supplier selections. If a procurement/sourcing partner lacks subject matter expertise, then buyers must step into that role or hire a third-party consultancy to serve as a subject matter expert and independent counsel for the sourcing team.
- Setting standards As an industry, we need to set higher more consistent standards like other industries when it comes to supplier sourcing. Business travel and meeting supplier sourcing is not like buying furniture. These are important long-term buying decisions that require more executive engagement, thinking and support as it impacts the entire enterprise. If your corporate executives are not proactively involved in your programs, you need to educate and engage them.
With the advent of technology and innovation bringing more spend and pricing transparency to negotiations, the rules of engagement for buyers and suppliers are changing. If you are still adhering to old and outdated sourcing strategies, you need to re-evaluate the efficacy of your processes and standards.
Again, the bottom line is if suppliers feel they have a fair shot at winning your business, they will invest the time and resource costs to participate in your RFP process. Consider the above and implement new rules of engagement to avoid the "no bid" and realize a more productive and successful sourcing process.