The Tender Trap: understanding the supplier's perspective
Having been a procurement practitioner in one form or another for over 20 years, and experienced both sides of the equation, I've gained a useful insight into the typical processes and experiences for both procurement professionals and suppliers. Unsurprisingly, the relationship is often conducted at arm's length from beginning to end, which can be conducive to fair practice but also risks creating a damaging vacuum between the two parties. For procurement professionals, understanding the supplier's perspective can have an overwhelmingly positive impact on the process and outcome. For the supplier, working with a team who understands their position can help them make the best decisions and put their best proposal forward. RFXs are a blunt instrument in themselves and can even be damaging when used in isolation. Seeing the bigger picture could help to transform the experience and value for everyone involved.
Quantifying the benefit
Suppliers have to quantify a few things before responding to any invitation to tender:
Responding to a tender is not free. In fact, responding to a tender can be an expensive business when you consider the amount of time, effort and energy that it takes to pull it together to show your proposal in the best possible light. After all, one of the biggest issues we have as procurement professionals is when a bidder appears to be putting together a 'vanilla' response without considering the stated requirements.
The cost of a tender has then to be weighed against the potential benefit, both financial and otherwise, should they be successful in their bid. Every potential supplier will have their own metrics, but their considerations will be balanced against any overheads. That includes all of the costs associated with presales overheads to respond to any proposal requests.
Odds of success
Responding to tender requests can be a bit of a numbers game. When a supplier is in a tender response situation, they have to estimate their chances of winning the work. There are a large number of factors to consider: is the potential customer asking for something that is a particular strength? Am I just one of 100+ bidders being evaluated? Does my offering have a strong selling point that can be quantified through the questions contained in the tender documents? Is the potential client looking for the lowest possible price or a value submission?
Many RFPs aim to push much of the risk onto the bidders as part of the process. The supplier has to assess whether this is something they are able to accept for their business and ask: if I go in at rock bottom price to win the work, will I have the capacity to undertake more profitable work? Will I have to ramp up capacity? Will I have to take on new staff/ logistics/ training etc? Essentially, winning work could have a deleterious effect if the risks outweigh the benefits.
Customer of choice
All customers are not equally valuable to a supplier in non-profit terms. If a customer has a poor track record of payment or has onerous contract terms it can turn potentially profitable work into a significant business risk very quickly. If a customer is difficult in terms of relationship, has poor communication or has a bad reputation, they are not necessarily a customer of choice and, as such, may not warrant the effort that goes into servicing their account.
Poorly written documentation
When questions are poorly thought out, ambiguous, repeat the same question with minor nuances, don't make sense or, as is too often the case, are simply unclear as to what the client is looking for (or how it will be evaluated), it takes far longer to respond. This has to be factored into the risk profile.
Communication is key
When a supplier receives an 'out of the blue' request they will not have any frame of reference to give the best possible response. Their first reaction is likely to be 'Why didn't they talk to me about this first?' Their second reaction is likely to be 'If they've not talked to me about this already, how do they know I have the capability?' Their last response is likely to be 'If they've not talked to me about this, what kind of customer relationship will this be?'
The supplier will need to decide whether to put forward a bid, or to decline and use their sales budget to pursue direct engagements with customers where there is a perception of open communication.
Talk to your bidders openly and honestly about what you are looking to achieve by running an exercise; ask for their input, bring the business stakeholders into communication with the bidders, hold supplier days and communication opportunities – allow the bidders to become interested in your business needs. Warm them up to the real opportunities that your business could afford them. Importantly, show them that this is not a paper exercise to simply ensure you that your incumbent supplier is in line with the market before you roll-over their contract.
Suppliers need to know that you are a customer that will add value to their business needs, too. Even the smallest contracts can become partnerships where the value relationship is mutual.
To quote Henry Ford: "If you always do what you’ve always done, you’ll always get what you’ve always got." Before you reach for your RFX template, take a moment to consider if what you've 'always got' has, in fact, been the best supplier to meet your stakeholders' needs or just the supplier most willing and able to complete your paperwork.
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