By Kevin Iwamoto, Senior Consultant
Note: Part 1 of this blog was devoted to defining the terms request for proposal, request for information and request for quote.
I recently spoke with an executive friend from a large travel management company who shared with me that his firm has become very selective about the number of RFPs they respond to, and that the number of bids they have turned down or deemed “no bid” has increased year-over-year. Likewise, some hotel supplier friends and representatives of a meetings technology solutions company are consciously turning down the opportunity to bid for business. What is going on?
It seems that marketplace suppliers are RFP-weary, and factoring in the costs for responding and submitting an 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. Conversely, if they review the RFP and the group history (if any) and ultimately determine that the request is just a pro forma action, as the customer likely will renew with their existing supplier, they will not bother to respond or participate.
I’ve been on both sides of the fence, as a mega global buyer as well as a supplier, so I see the situation with equal pros and cons. Frankly, in light of the abuses of using RFPs, I can totally understand why suppliers are RFP-weary and skeptical. Let’s review why there’s culpability on both ends of the supplier-buyer divide.
- The costs to respond to an RFP/RFI/RFQ are becoming more prohibitive, forcing suppliers to become more selective in the type of RFP to which they respond.
- The confusion and misuse on the part of buyers as to which “request for” strategy is most appropriate for the sourcing exercise is adding to the collective skepticism from suppliers. If responding to each bid request is cost-prohibitive, and the likelihood of winning the bid is slim to none, the likely result will be a no-bid response.
- RFPs gone wild: It’s bad enough that corporate buyers annually source their hotel programs using RFPs to conduct their business, but add to the mix all the meeting RFPs that go out to suppliers daily, and you can see why it’s become so expensive and challenging for suppliers to keep up with volume of requests and negotiations.
In addition, the negotiating strategy of casting a wider net of suppliers to send RFPs to yield better pricing responses just exacerbates the problem and damages the credibility for legitimate RFP business. It’s costlier for the buyer as well, because you likely will have to spend more time and energy on evaluating more responses, even after disaffected suppliers drop out of the process.
- On the other hand, clients who stay with their preferred suppliers for a long period of time and, because of internal regulations, are mandated to go out to bid every 35 years find themselves getting fewer competitive suppliers to participate in their sourcing cycle. Why would a supplier respond to an RFP when it’s clear the requesting company has no intention of changing their preferred supplier?
- It’s the responsibility of the buyer to truthfully articulate the real opportunity for a change in suppliers, but if the tendency is to stay with the incumbent, then don’t send an RFP — send an RFQ, because basically you’re just checking for baseline pricing information and using that information to renegotiate your incumbent supplier’s agreement. Don’t waste suppliers’ time and money issuing a full RFP when your true intention is to price-shop the competition.
- Size used to matter, but 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.
In the case of hotel suppliers, having 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 hotel sales, leaving the supplier vulnerable with a revenue shortfall.
Suppliers are realizing the true value of large (not mega) and midsize clients who don’t have radical volume-based discounted rates but provide higher average-daily-rate business and increased revenue per available room for the properties. This business has not only become more attractive and lucrative to hotel suppliers, but if the clients jump ship, it’s easier to replace them in the client portfolio because there are more similar size programs in those ranges than in the mega range of buyers.
- 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 that a minority of 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. But I also have witnessed too many inexperienced, tactically price-driven junior buyers enter our industry making rookie mistakes and bad judgments in supplier selections.
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 isn’t like buying furniture. These are important 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, which is bringing more spend and pricing transparency, the rules of engagement for buyers and suppliers is changing. If you’re still adhering to old and outdated sourcing strategies, you need to reevaluate the efficacy of your processes and standards. While you’re at it, it’s time to change your rules of engagement, too, because like it or not, the marketplace has already done just that.
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