eRFx Best Practices Case Study - A Rudderless Boat
The following case study is from the eSourcing Wiki article on eRFx Best Practices. If you are interested in reading more about best practices, you can either visit the eSourcing Wiki or read today's eSourcing Wiki Wednesday article.
Profile: A global, multi-billion European pharmaceutical company determines the need for a large scale IT services procurement. An RFP is issued to gather information and pricing from a global pool of potential vendors. It is estimated this problem is costing the company millions per year in loss.
Problem: A sourcing team and committee are assembled and the first version of the RFx process is created. The document sent to suppliers is over 150 pages long with highly detailed questions regarding all aspects of the technology deliverable. Vendors can quickly deduce that the line of questions show a clear comprehension of problems from the buying team with no perceivable direction for the project or understanding of the solutions being requested. Essentially, the buyer is requesting the supplier to spend significant time and energy to respond to questions that have little chance to result in any business.
Result: Most qualified suppliers are able to quickly surmise that the buying team has gone into this project without doing proper research and can conclude one or multiple of the following:
- There is no budget for this project
- The questions are so onerous and detailed that a supplier (or incumbent) has already been chosen and the data is being collected to make it “official”
- The buyer is going through a price discovery exercise to create leverage against an incumbent
- This will never be awarded due to the lack of understanding on the front end
- The questions are so wildly variable that the supplier can forecast a potentially unprofitable/undesirable client
Once the RFP has been issued, most suppliers decline the invitation to bid. This results in a critical loss of supply base, reducing the available solution pool to unacceptable levels. Of the bids submitted, none are comparable side-by-side, making all of them useless in current form.
Eight months after issuing the request, the buying team formally announces to the entire supply base that the project has been permanently canceled. Internally, the waste of time and resources of the buying team creates such poor results that it may take years for the initiative to regain effective standing again.
Solution (from the eSourcing Wiki): The buying team should have taken a milestone based approach where an initial survey was issued to gather basic information and build knowledge internally about the marketplace and possible solutions or alternatives to traditional thinking. Once a deeper understanding was built, a subsequent RFx would be generated to follow up unresolved issues and deal with a more qualified group of suppliers. At this stage, the internal buy-in would be approved and communicated to the supply base to convey confidence and keep suppliers motivated in the process. As the bid methodically moves from stage to stage, each supplier that continues the process knows that they are competing equally and the investment being made will have a positive return on investment. Ultimately, every bid is measured by the end result and is affected by the number of companies that desire the business while remaining capable to perform it.
Our take on the situation
While it is easy to see what went wrong in this scenario and why, that doesn't stop the same mistakes from playing out in companies all over the world on a regular basis. What do we think would have made a difference?
- Any services project of this scale should have been approached as a strategic partnership with whichever supplier(s) would be selected. Starting off with such a large RFx made the information collection 'faceless' to the supplier participants and certainly didn't set a tone for collaboration. Better to start by meeting a small group of potential suppliers face to face to discuss the project objectives. This would provide the buying team an opportunity to learn about the options available to them as well as to have an executive project sponsor come in to meet each supplier, showing corporate comittment at the highest level.
- Death by committee is the best way to destroy the potential of any strategic project. While input from many team members is important to collect the right information and get buy-in, someone has to be the final decision maker (hence the 'rudderless boat' analogy). If the project is as large as this one, the point person should have the appropriate experience and seniority required to coordinate moving pieces and to have tough conversations if needed with internal stakeholders pushing the RFx beyond reasonable limits.
- Remember that for every one question you ask, you have to read X times the responses - one for every supplier that responds. Assuming the team invited at least three suppliers (although it was likely more), a 150 page blank RFx means reading a 500+ page response from each supplier, not including the variety of attachments each respondent is likely to include as part of their submission. Such a situation quickly becomes unmanageable and risky - the smallest detail can be critical to the success of a project, and finding such a detail in a sea of information is nearly impossible, especially if you have a large review committee all counting on each other to be the ones to catch that detail and bring it to the team's attention.
Lastly, this company seems to have fallen into what this month's featured publication Vested Outsourcing calls, "The Outsourcing Paradox". The Outsourcing Paradox "is the development of the 'perfect' set of tasks, frequencies, and measures. The 'experts' within the company attempt to develop the 'perfect' Statement of Work (Vested Outsourcing, p. 27). The problem with taking an overly prescriptive approach to an RFx is that although the buying organization will have expectations of the selected supplier(s), they have already demonstrated that IT is not a strategic competency. We know they have been losing millions per year, so clearly outside help is in order. Better to focus on what they are trying to accomplish than how the supplier should get them there. If they could articulate that effectively, they wouldn't be in the situation they are in!