How to Handle Key Challenges That Face Buyers During an RFP Undertaking

In my previous articles, The Evolving Role of Procurement in Modern Organizations – How Vendors Should Adapt to the RFP Process, and Why Global Corporations Must Source Their Hotel Spend And Run A Reliable Global Hotel Program? I try to build the case for the importance of managing the RFP process in a more methodological manner. In this article, I try to touch upon some of the key challenges that face the Buyer during a typical RFP undertaking, and how best to handle these challenges.

Although the focus of this article is on the Buyer, which is in this case, a typical global organization that is sourcing travel commodities such as hotel room nights or air contracts, the key challenges could be applicable to other types of commodities or services being sourced by organizations of any type or size.

The key challenges that face Buyers during an RFP undertaking include:
- Defining Requirements
- Managing Communications with Vendors
- Choosing The Proper Technology
- Implementing a Project Management Approach
- Evaluating The Bids
- Contracting & Performance Measurement
- Managing a Global Program

Defining Requirements
Although, this seems to be a straight forward point, it is sometimes looked upon as a major hurdle. Not only the Buyer needs to clearly identify its needs, the Buyer must be able to fully articulate these needs and requirements to the vendors. Otherwise, the RFP process will not be as effective and will not yield the aspired objectives.

Managing Communications with Vendors
Once the RFP’s are out, and vendors start working on their responses, communication back and forth with the vendors becomes a key success factor for the RFP process, since in some cases, the number of vendors in a single RFP process, may reach hundreds of hotel properties simultaneously, especially when managing a global hotel RFP program.

As a best practice, the Buyer has to designate a project manager to handle the communication with the vendors during that process. A single point of contact for all vendors. If you have multiple contacts, this will create a havoc during the RFP process, and may lead to mixed communication messages, and confusion down the road. The designated project manager must be knowledgeable about the Buyer’s needs and stakeholders, and how the RFP will be evaluated. The project manager, ideally, has to be knowledgeable as well about the industry of the vendors. He or she could be the procurement manager, or travel manager, or even an independent consultant who has strong expertise in the field.

The communication has to be fair, as some questions may lead to answers that could give certain vendors competitive advantage. Therefore, as best practice, it is always better to collect all questions from all vendors within a specific time frame - call it questions period - and then, the project manager aggregates all these responses into one Q&A sheet and distributes it at the same time to all vendors, to make sure that all vendors have the same level of information.

Choosing The Proper Technology
Many new portals and applications are out there in the marketplace that offer great benefits for typical RFP processes. As the marketplace is crowded with many technologies that offer many functionalities and tools, the RFP manager must decide on which technology is suitable for the purpose of his/her specific RFP before embarking on the undertaking.

I strongly recommend doing some research before deciding on which technology to utilize. I recommend going with the technology that is simple enough to streamline the process, and enable proper flow of the RFP, including communication with the vendors, sending out the RFP’s, receiving bids, and submitting counter-bids. The technology has to be simple to use and accessible for all vendors equally. As best practice, you need to ensure that the vendors do not have to purchase any licenses or additional software in order to have access to the technology, as this could lead to vendors dropping out of the RFP, and loss of opportunity for both sides.

Implementing a Project Management Approach
Buyers must realize that an RFP undertaking is actually a project, with a beginning and end. It is not an ongoing process. Therefore, it is critical to run the RFP utilizing a project management approach, by which I mean, to identify the requirements and end results, key stakeholders, key evaluation criteria, and most importantly, key milestones and timelines.

The communication with the vendors has to include all of the project components mentioned above, and it must clearly identify to the vendors the specific milestones, and timelines. The Buyer, as well as, the vendors must adhere to these timelines to ensure that the project is kept on track, and the required results are fully attained,

Sometimes, especially when the participating vendors in an RFP have other business relationship with the Buyer (and whoever is managing the RFP), the line between the RFP process and the other business relationship could become blurry. Participants could discuss multiple business issues on a conference call, and timelines could become overlapping and confusing for all parties. Therefore, it is the responsibility of the Buyer to keep things on track, and clearly separate the business pertinent to the RFP from other business. This circles back to my second point of assigning a project manager to run the RFP, and it would be even better if the appointed project manager happens to be independent, or at least, is not involved with the vendors in any other business during the RFP process.

Evaluating The Bids
Another hurdle that the Buyer has to address before embarking on an RFP undertaking is on what criteria the bids will be assessed on and contracts will be awarded. The Buyer has to be clear and decisive on the criteria, and make sure to communicate that to the vendors.

Generally, the criteria stem from the goals and requirements of the Buyer. What are you looking for in the vendor/or the service provided, to be able to make the decision to award the contract or preferred status to that vendor? Some criteria to consider: (mainly for hotel commodities)
- Rates or discounts
- Amenities like breakfast, internet, etc
- Proximity of hotel location to a corporate point of interest, facility, or client location
- Chain affiliation; loyalty program
- Market tier; luxury, upscale, mid-scale, or budget
- Extended stay viability; especially if your travelers travel on long stay projects (like engineers or consultants)

Knowing the criteria from the beginning enables to project manager to prepare a more focused solicitation list, as well as, manage the RFP process more efficiently.

Contracting & Performance Measurement
Contracting and performance measurement are critical components for any successful RFP undertaking, and any procurement practice. The Buyer has to be clear and up front with the vendors on how the contracting will be executed, when the contracts will be drafted, and by whom. In addition, it has to be clear whether the contracts are electronic or in hard copies.

Performance measurement has to be part of the contracting process as well. There has to be clear measurement indicators in the contract for both parties. For example, in a hotel contract, there has to be clear understanding that the hotel will load the accepted rates and inclusions to the applicable Global Distribution Systems by specific timeline. In addition, there has to be some sort of quarterly or monthly reporting that reflects the room nights being spent by the Buyer’s travelers, and how much they are paying in terms of room rates, and amenities. All of that has to be clearly indicated in a contract to ensure transparency and clarity.

Performance measurement does not only guarantee the rights of the Buyer, but also, aids the vendors in case there are certain revenue thresholds or business production levels that the Buyer has agreed to during the RFP.

Managing a Global Program
Finally, as businesses are growing globally with the emergence of markets in Asia, Europe, and the Middle East, it is highly likely to be involved in managing a true global RFP. This increases the complexity of RFP undertaking management, by getting involved with vendors from different cultures and backgrounds. Some of the incremental challenges for managing global programs include:

Language barriers; Buyer needs to deal sometimes with non-English language speakers
Time zone differences; Buyer needs to deal sometimes with vendors with 12-hour time difference
Cultural differences; this could become an issue during negotiations or regular communications. Buyer has to be sensitive to any cultural differences that could impact the relationship with the vendors
Technological differences; not all countries are at the same level of internet adaptability, or accessibility
Business practice difference; not all countries have the same set of business practices or cultures. This increases the need for enhanced communication to be able to clearly articulate the Buyer’s needs and objectives from the proposed relationship via the RFP

In conclusion, while the above mentioned challenges include most of the potential hurdles that the Buyer would typically face during a typical RFP undertaking, there could be more hurdles to consider based on the Buyer’s industry, requirements, or even economical environment. The main point is that the Buyer has to clearly define and anticipate all potential challenges that could face the RFP undertaking, and to proactively, address each one of these potential challenges to ensure a successful and efficient RFP process.

The Evolving Role of Procurement in Modern Organizations – How Vendors Should Adapt to the RFP Process

We have witnessed historical events, and colossal changes in the last ten years. From the burst of the tech bubble in the late nineties, the tragic events of September 11, two concurrent wars in Afghanistan and Iraq, and finally the meltdown of the financial markets that has led to the recent recession. Probably the contribution of this past decade alone, will keep historians busier than ever documenting and analyzing every single second of its time. How is this relevant to a blog that mainly focuses on the business world? Well, as everything around us is changing, the role of procurement in modern organizations is evolving and changing as well.

The catalyst for that change is the introduction of Sarbanes-Oxley a few years ago, which requires corporate officers to be responsible and accountable for establishing adequate internal control structures and procedures for financial reporting. Naturally, the procurement role and the decision-making process for allocating public companies funds have become more visible and tangible.

Companies now need to go through a more rigorous procurement processes for many reasons. David Hannon, in his article “Is Sarbanes-Oxley a burden or blessing?” referred to four key areas where procurement can help drive compliance as stated by Deborah Wilson, a procurement consultant: (* link to article below)

- Procurement can help by automating the bidding process and creating records of how bids were awarded and to whom

- By documenting approval for purchases, procurement can create a clear audit trail for each transaction

- Implementing tighter controls over processes for valuing assets on the books starts with procurement’s valuing of such assets

- By having documented all spend clearly, procurement can make it much more difficult for post-procurement accounting problems or scandals where expenses are made to look like assets

I like to say that enacting sound procurement practices acts as a layer between direct buyers and sellers – in a way like the sun block cream, it does not prevent you from enjoying the sunshine, but it protects you from UV rays and overexposure.

The evolution of the role of procurement does not only impact the buyers, vendors of services must adapt, as well, to the new dynamics, and change their paradigm for winning business. Now, vendors need to deal with a more rigorous procurement process in order for to sell their services and win business in the new environment.

We have seen, recently, many “new economy” and “think-out-side-the-box” type of organizations, where the founders are the current managers and final decision makers; resort – when procuring services -to go through the RFP process from a procurement lens.

As the procurement role is evolving, vendors’ approach to RFP must evolve as well. The key ingredients of any RFP process revolve around the following four stages:

Before RFP 
This it the time, when the vendor is expecting the RFP to be produced by the Buyer in the near term. The vendor must capitalize on this time by preparing for the RFP, assembling the proper team to manage the RFP, and focusing on the proper opportunities.

Some RFP’s require certain expertise or capabilities that the vendor must acquire as prerequisite for winning the bid. A smart vendor should anticipate his/her deficiencies and invest the time before the RFP in addressing the lack of certain aspects that could hinder its ability to win.

As people make decisions, not organizations, vendors must assemble qualified teams to handle the prospect clients during the process of the RFP. There has to be a balanced team that includes people-persons, who can effectively communicate and “charm” the client, and technical people, who can actually act on the technical requirements of the RFP. So many times we have seen great vendors, assigning their top technical people to manage the RFP to the demise of the entire bid, due to lack of inter-personal and effective communication skills. This is not to suggest that technical people are not effective communicators, but just to stress a point.

Finally, vendors must focus on the proper opportunities. Sometimes the aggressive growth targets, and the desire to win market share cloud the judgment of vendors, and suck them to participate in RFP’s that either cannot be won, or if were won, would offer a lousy ROI. Vendors must understand that the RFP period requires attention and resources that should be invested prudently on the proper opportunities. Therefore, it is imperative for vendors to assess the opportunity before they commit to the RFP, and participate only in the proper opportunities.

RFP Analysis 
Once the vendor’s team decides to enter the bidding process, and receives the RFP documents, it is now the time for due diligence and proper RFP analysis. This stage encompasses learning as much as possible about the client, meeting with key stakeholders, and identifying the true decision makers. In nutshell, the vendor who wins the business is the one who properly assesses the need of the client, and effectively communicates that back to the client.

You can learn about your client by meeting with the stakeholders and decisions makers; furthermore, you can learn about the client from analyzing the data provided, information about their business, and surely from the scope of work included in the RFP itself. However, quite often the information provided raise more questions than answers, and here comes a true differentiator, a vendor that asks the right questions – would know the client much better, and will be able to communicate that back to the client by drafting the better RFP response.

RFP Response 
This should be a very straightforward stage; however, many vendors fail at this stage, because they simply ignore the instructions. They may offer the best service, but do not communicate that as instructed by the client. Vendors must fully comply with the instructions provided (for example, use of certain procurement portal, inclusion of certain documents, etc). Their compliance indicates that they are focused on the client and the client’s needs. Finally, vendors must pay close attention to pricing. This could be straightforward as well, but we have seen many bids come with vague pricing schemes. This would put vendors at extreme disadvantage if there happens to be a strong competitor with clear pricing model.

Simply put, answer the questions as instructed, and say how much this is going to cost.

Post RFP 
Finally, once the RFP process is over, a strategic vendor would run a post-RFP protocol – whether they have won the business or not. This protocol entails debriefing the team and the client (if possible) on the process, and on what went well, and where there is opportunity for improvement. This will help the vendor in developing a proposal knowledge base that will be extremely helpful in winning future bids.

In conclusion, the RFP process is the dating period between vendors and buyers. Everything could be going right, yet, for one issue, or for one stupid mistake, it could be over.

While I attempt to be as generic as possible in my blog, I understand that not all of my above-mentioned comments would be applicable in all cases. Please feel free to share your views and experience with me and with the readers.

Source:
* David Hannon Article: “Is Sarbanes-Oxley a burden or blessing?” Purchasing. Thursday, February 3 2005
http://www.allbusiness.com/company-activities-management/operations-purchasing/6236767-1.html

Why Global Corporations Must Source Their Hotel Spend And Run A Reliable Global Hotel Program?

Recently, you may have heard that some corporate travel managers – of global corporations - are having second thoughts about going through the usual annual RFP process for their corporate hotel programs as they have been finding better rates, when booking online, than their corporate negotiated rates. A few have gone to state that they would consider giving up their entire RFP program for 2010, and rely solely on online booking portals and travel agencies.

In my opinion, that would be a mistake.

First, given what we have seen in 2009, I do understand their rationale, as most of us went through a lengthy RFP season during 2008 to secure negotiated rates for 2009 that, some of which rates, proved to be higher than what the economy dictated. As the economical situation continued to deteriorate early this year, hoteliers found no alternative to combat the hostile environment and gain market share except to cut their rates significantly. We have seen rates dropping to 2006-2007 levels in some cases. This enticed many business travelers, looking for bargains, to bypass the negotiated corporate programs, and book directly online. In some cases, travel managers, who realized that some of their negotiated rates were far higher than what the hoteliers were actually willing to accept, have returned to the negotiation table and re-negotiated their rates with the hotels.

As the world is still waiting for a decisive financial recovery, and all signs are indicating that the economy will not be turning around any time soon, business travel prospects for 2010 is still dismal. This environment is positioning both suppliers and buyers in a potentially confrontational situation. On one hand, suppliers are hesitant to lower their rates further, as they have reached low levels not seen in years. Any further drop in rates would not only jeopardize their profitability, but survival. On the other hand, corporate travel buyers are sharpening their knives for more rate cuts and aggressive negotiations during this season.

Other corporate buyers; however, are flirting with the idea of taking a different approach this year away from the normal hotel sourcing rituals. They are considering saving the time and effort (and money) usually spent during hotel negotiation season, and go online to procure travel directly. They believe that since the economy is not kind to travel vendors these days, hoteliers have no choice but to lower their rates during 2010. Hence, by not committing to a negotiated rate, they assume that they could benefit from the price-slashing spectacle they are expecting to see. They are betting that hotel rates will continue to drop as a falling knife in 2010.

As I mentioned earlier, I disagree with that approach. There are many reasons why corporations should have negotiated rates and reliable hotel programs in place for 2010. The following are seven main reasons why you must go through with your RFP this year:

1. Uncertainty. No one knows for sure when the economy will actually turn around. If we follow the analysts, they were predicting oil to hit $200 a barrel in mid-2008, and had no clue when the financial meltdown occurred. However, what we do know is that as soon as the economy turns around, hotel rates will be poised for a rapid increase, due to supply restrictions in 2008 and 2009, and the financial fatigue experienced by major chains. I would also add to the mix the impact of a lower US dollar on inflation in general. You may find online travel portals’ offers to be very attractive in a sliding economy, but they will not be that attractive when the economy rebounds.

2. Leverage. When you book online at a property, you are losing any leverage with that property. You are simply agreeing to whatever they are offering you at that time, and you are no different than Mr. Joe Random who is booking for his next vacation. Leverage will always enable you to get better deals, as you will be recognized by the property for all your business and room nights you are booking at its location.

3. Benchmarking. A critical component of any successful RFP for a hotel program is benchmarking bids and rates. How could you tell if the deal you are getting is actually a good deal or not? You need to go through the methodological process of benchmarking to understand the markets, and how rates are trending in each sub-market.

4. Amenities. You may have a very good rate online; however, negotiating deals with properties would give you the opportunity to include pertinent amenities to your travelers with the rates, like breakfast, internet access, parking, late cancellation, and so on. It is true that you may be able to get very cheap rates online, but if you read the fine print and restrictions, your traveler may end up paying far more than the asking price on a normal business trip.

5. Flexibility. Even though last room availability (LRA) negotiated rates seem to be flat fixed rates, many chains are actually offering dynamic pricing and the negotiated rate is simply a cap rate. For example, a property would offer you a $150 flat rate; however, if the corporate rate at the time of booking is lower than the negotiated rate, they will offer you the lower rate. Therefore, corporate travel buyers will not miss out on any opportunity should the rates fall below the negotiated rates; however, they will be protected should the rates creep higher.

6. Budgeting. Having a solid hotel program with clear and established reporting mechanisms and compliance will enable you to make better budgeting decisions and enjoy a better financial transparency. You need to be able to have room nights and rates projections for the year ahead. Something you will never have should you opt out of regular RFP process.

7. Relationships. Finally, it is always about building strategic relationships with your main vendors. Having a corporate hotel program will allow you to forge and nurture strategic partnerships with hotel partners that could prove to be beneficial during times that favor the sellers.

In conclusion, in a world full of uncertainty, you need to be able to control your second largest controllable expense item - that is T&E spend. The cornerstone of that is to adhere to best procurement practices in sourcing travel commodities.