In the course of our careers managing requests for proposal, both of us have encountered what are simply wrongheaded and counterproductive attitudes toward the process. One of the more common ones is the notion that the best way to get the quality responses you want is to send your RFP to as many suppliers as possible. It's just not true.
One time, George had been called in to review the supplier responses to an RFP for software services. Naturally, he wanted to know how many responses there would be, so he asked, "How many suppliers received the RFP?"
"Just 10," was the answer. George was startled to hear that, but his colleague must have thought that he was disappointed that there hadn't been more, because he proceeded to explain that the team had hoped to send the RFP to a dozen suppliers, but could only find 10 that seemed suitable. The thinking behind this was that they believed that the more suppliers they sent the RFP to, the more likely it was that they would end up with many strong responses from qualified, capable suppliers.
That had not been George's experience, however, and he was curious to know what the results had been for them. The evaluation team had seven members. The evaluation process was taking longer than expected, and suppliers were calling, wanting to know when a decision would be made. The evaluators were complaining about the complexity of the process. The internal client was growing restless. At this point, the team had weeded out all but two of the responses, based on cost more than anything else. We have seen cases where suppliers have been narrowed down to two essential equivalent candidates, but this still leaves price and cost as remaining differentiators.
It all sounded like a waste of time to George, but it was nothing he hadn't seen before. The team had spent weeks struggling with a complex evaluation process, and in the end they had thrown that all overboard and focused on cost. Budget is certainly an important criterion when evaluating responses to RFPs, but it shouldn't be the only one. Once it rose in importance for the team, you had to wonder about all that time spent early in the process looking at other things. After all, with budget now the predominant criterion, the team hadn't really narrowed the field from 10 responses to two. It had narrowed it from three; seven suppliers were disqualified due to high cost.
We have learned that sending out a lot of RFPs for the sake of sending out a lot of RFPs is counterproductive. It is far better to do some research ahead of time and target your RFP at the suppliers that are most likely to return the best responses. Before discussing how to assess the best candidates for receiving your RFP, though, let's consider how casting a wide net has a negative effect on both the suppliers and our own organizations.
The Supplier's Point of View
A supplier that receives an RFP will consider it carefully before even deciding whether it will bid on it, weighing the question of what it would take to win the business. The supplier has good reason to be cautious, since a typical response requires a budget of anywhere from 2% to 3% to upwards of $10% of the potential revenue. That cost would include things like the time required to do financials and pricing; the expenses of the marketing and technical teams involved in the response; the time spent on technical writing and review; pre-proposal conference travel expenses and time; and senior management's time to review evaluate, reassess, and redirect as needed.
Those response expenses are part of suppliers' cost of doing business, but those of us who send out RFPs should think about them as well. After all, the cost of doing business is always passed on to us buyers.
If that is not enough incentive to pass up the temptation to send RFPs to companies that have little or no chance of getting the business, then consider the prospect of burning out your suppliers. That is what will happen to suppliers that repeatedly receive RFPs from you even though they don't have a realistic chance of winning your business. What would you do if a colleague kept asking you for advice but never applied your counsel? You'd probably feel frustrated and stop giving your advice. Your suppliers are going to feel the same way and will stop responding to your RFPs -- even if you do eventually send one that they would have a good shot at winning.
Whether you realize it or not, you are training your suppliers on how to do business with you. So train them to know that when you send them an RFP, you mean business, you are serious about receiving their proposal, and they have a legitimate chance at winning the work.
Effects Closer to Home
There are also costs for the organization that creates the RFP. Some are tied to the production of the RFP and are unaffected if more or fewer RFPs are sent out. Other costs, though, accrue when the responses are returned and the evaluation team gets to work. It takes time to properly evaluate a response to an RFP.
But the real problem with sending out too many RFPs is that you increase the chances that none of them will be properly reviewed at all. In the engagement we mentioned above, George asked the members of the evaluation team whether they had reviewed and read all of the RFPs assigned to them. Unsurprisingly, most of them replied that they had read a few of them and merely skimmed others, but then they ended up just looking at the price offer and making their cuts accordingly. Why, George asked, didn't they devote the ninety minutes to two hours that, at a minimum, an RFP response evaluation requires? Most of the team members said they were just too busy with their normal workloads to look at all the RFPs. They came to resent that they had to lay aside two or three days to review so many responses.
Part of the problem in situations like this is that the evaluation team has not been properly prepared to understand the time commitment that is required to evaluate an RFP response. This hurts the organization's RFP process, and it is also disrespectful to the suppliers that took the time and effort to respond. Anytime a supplier commits itself to submit a response, it has invested a good deal of time and money, and the submitting organization owes it the courtesy of reading its response and evaluating it thoroughly against the objectives outlined in the RFP.
But another part of the problem is that we are really hurting ourselves when we seek more responses to RFPs than our teams can reasonably handle.
Don't Waste Money and Time
RFPs are a waste of time if the responses aren't thoroughly evaluated. If one obstacle to the evaluation team adequately applying itself to its task is that there are just too many responses, then it seems logical to reduce the number of RFPs that are sent out. But at the same time, you don't want to overlook any promising suppliers.
That's where a request for information (RFI) comes in. If you are lucky enough to have a bounty of suppliers competing for your business, issuing an RFI can reduce their number. Because suppliers today provide so much information on their websites, RFIs are often overlooked. But they are valuable tools that can provide you with a lot of specific information that you won't find any other way. Since RFIs are less formal than RFPs and usually run three to five pages, they can be issued much more quickly, and the suppliers' responses will also take much less time. Evaluation of those responses will also be relatively quick, and the result is that you will have a much better idea which suppliers should receive your RFP. In the situation we outlined earlier, the team could have saved a lot of supplier time and money by requesting budget numbers in an RFI.
With an RFI, you can easily find out whether the main objective of the eventual RFP is a core offering of the supplier. Besides using RFIs to request a non-binding supplier, you can also ask what companies compete with the supplier, which is a good way to find out about any suppliers you weren't aware of that provide the goods and services you need. You can ask straightforwardly what questions you should include in the RFP.
When evaluating a response to an RFI, don't just focus on the questions the supplier answered. It's just as important to notice which questions weren't answered at all. Anytime a supplier responds to a question feebly or not at all, you have an indication that you have found one of its weaknesses.
On the other side of the supplier/buyer relationship, your suppliers will appreciate that the RFIs you send require less of an investment in time and money on their part, and you will be reducing the number of full RFPs that you issue, thus avoiding the problem of suppliers burnout that arises when you send RFPs to suppliers that don't have a reasonable shot at winning.
Qualified, but Still Unacceptable?
When asked how many supplier candidates to invite to participate in an RFP, we respond first that the real question should be, "How many fully qualified and acceptable candidates should we invite?" Some people seem to think that you need a lot of suppliers to participate in order to create an air of competition. We don't buy it. Our belief is that there is no value in having a supplier participate if it hasn't been prequalified (commercially and technically, as appropriate). But once you have established which suppliers are fully qualified, you still have to determine which of those are acceptable. That means that your internal business partners must agree that the potential suppliers are acceptable should they emerge as the ultimate winner of the contract.
Omitting these steps can spell disaster. There is the obvious risk of implementing a supplier change when the new supplier is not qualified: The business suffers and your credibility suffers, limiting influence on future initiatives. But there is a more insidious risk associated with this approach. Steve once observed a case where a fully qualified supplier invested significant effort to respond professionally to a fairly complex RFP, and in fact provided the responsible bid with the lowest total cost, only to be rejected because one person on the team was uncomfortable with the supplier's capabilities.
Consider the fallout from a situation like that. The buying company's credibility is diminished in the marketplace. The low-cost bidder has incurred unnecessary costs, since it had no real chance of earning the business. Over time, the cost of frivolous RFP exercises finds its way into pricing from suppliers. And suppliers that do not believe you are providing the level playing field on which they can win the business may submit higher-cost proposals or hold back truly innovative ideas for more favored customers.
All right, then, how many fully qualified and acceptable candidates should you invite? It depends. There is no one answer to cover every RFP. But we have found that two factors influence the ideal number.
The first factor is the size of the project (meaning the anticipated dollar spend). As this increases, it makes sense to increase the number of candidates. If a project is going to be relatively inexpensive, two or three competitors might suffice, and anything more could cause suppliers to shy away from the effort required to compete for such a small prize. Also, of course, the time and resources you will need to spend to evaluate a large number of proposals may not be worth the effort for a small project.
The second factor is the relative complexity of the project and/or the potential value of supplier innovation in finding a solution to a complex problem. As these increase, we would invite a larger pool of fully qualified suppliers (assuming a larger pool exists). Having a larger number of candidates for a larger, more complex project provides a couple of benefits that come to mind.
- - RFPs cost both the buyer and seller a lot of time and money.
- - The evaluation team must allocate one to two hours for each RFP evaluation.
- - Limit your RFP to qualified respondents, and send it to an appropriate number of suppliers.
- - Complexity and dollar amount will dictate how many respondents to send your RFP to.
- - You must send your RFP to a sufficient number of qualified suppliers to ensure that you receive quality responses.
The first benefit is that, for a complex issue, having more suppliers participate will result in more ideas being provided. Limiting the number of candidates too severely may shut off the one truly innovative solution you need.
The second benefit is that more responses will allow you to better analyze the costs, providing a benchmark of sorts. Observing the "spread" of costs/prices provided can give you insight into how well your requirements have been defined for the project. If you see a wide spread between prices, with no clear grouping or cluster, re-examine the requirements definition provided in the RFP. The scattered responses on price may be an indication that the suppliers are generally unclear as to the scope of work. If this is the case, you may be in for delays, disputes or disappointments downstream.