Why do high quality suppliers pass over big RFQ/RFPs?
In a recent discussion, a large supplier of services shred that they fail to respond to almost 50% of every RFP that comes their way! This insight was very surprising to procurement executives we spoke with….few could believe that sales would actually not try to pursue every opportunity that came their way! There are four primary reasons why customer pursuits are halted in their tracks by a supplier.
- Limited access to the decision maker – if sales does not have an opportunity to present to the decision-maker, then they won’t proceed. If sales has the opportunity to make a presentation to the decision-maker (whether it is at the corporate or local level), they are almost always going to succeed. An important issue here, however, is the need to understand WHO the decision-maker is. The internal procurement-stakeholder relationship is therefore critical to understand by sales at this stage, and will thus strongly influence the outcome of the business development executives. Sales executives note that if there are three coaches (influencers on the decision-maker) that you can speak to, than you have a good chance of success to influence the process.
- Lack of existing relationship. This is often known as a “cold” RFQ. If there is no pre-existing relationship with a customer, and no prior engagement, the odds of success are also very low. This means that an entire education process has to occur. Also, it is important to recognize the cost of change that the customer will need to go through, and evaluating whether the benefits provided by a potential change in sourcing strategy will outweigh the costs of doing so. Procurement may not even understand the value proposition, and are using the supplier as a “check in the box” to get a third quote to their RFP, in the hopes of putting more cost pressure on the incumbent supplier! Being “window dressing” on a “cold RFQ” is something that no sales person wants to spend their time working on…
- If the potential customer has never outsourced before, they are unlikely to understand the value proposition of a third party logistics provider. If the decision-maker at the customer does not recognize the value statement, and doesn’t understand the value provided, and is purely shopping around for a low price, there is a low chance of success. “I’m out!” says the supplier.
- Competitor environment, strong incumbent. If a business development leads goes into a situation where there are multiple other suppliers in the running, then you are clearly viewed as a “commodity” supplier by the customer, and there is a low likelihood of success.
In all four of these cases, however, there is an education process that must occur, and an opportunity for sales to help procurement understand the nature of the business decision they have to make. The sales team needs to offer a process and business model that presents an opportunity that will cover the cost of change. Is there enough value on the cost of change on their side? If not, then the sales opportunity is simply not present. On the other hand, Procurement is selling ideas as well – up the chain. And selling procurement on the tool kit to help them sell the sales organization, and coaching them through the benefits and business case, will be important here.
Understanding the decision-maker in the process is clearly an area that requires an in-depth assessment, as this can heavily influence the nature of whether to pursue the customer. In the past, sales would rely on internal relationships with the business unit, who was the presumed decision-maker. As procurement organizations have matured and have come into their own, sales reliance on C-suite relationships can occur at their own risk. In one healthcare provider, a supplier went to the CEO when turned down by procurement due to performance issues, and was promptly told that they needed to go back to procurement, who held the decision-rights! Many sales deals in services are $50M+, and these decisions are made carefully and with a great deal of due diligence. There is often a ‘tactical” element to the procurement process, especially with the advent of RFQ tools such as those in Ariba. These processes often result in impersonal interactions, and value-based relationships may be damaged in the process.
There is a need for both parties to better understand when, why, and how an RFQ should be run, and the reasons behind it. Transparency on why it is happening is key to making the outcome competitive and successful.