A Request for Proposal (RFP) is a reverse auction. Unlike a regular auction in which there is a single seller and an audience of buyers bidding up the price of the item, in a reverse auction there is a single buyer facing a crowd of suppliers bidding down the price (and/or increasing the quality) of the solution in play.
Whenever one sees a regular auction on TV or in the movies, there is a large group of people raising paddles in competition with one another. Focus on these words: large and competition. The whole point of a competition is to surface the best price for the seller, in this case, and this requires a large group of people. Not everyone is going to want to bid on this particular item, but you need a sufficiently big set of potential bidders to surface competition in which a number of people are vying for the prize.
What would we call it if there were only two or three people in the audience?
We would call it a failed auction.
It fails to generate any competition. The two or three people in the audience can tell straightaway that the likelihood of a bidding war that pushes the price higher is small, just because there are only a handful of potential participants.
Yet, in the reverse auctions that are Requests for Proposal and Requests for Quotation, a failed auction is the meagre standard most buyers have reconciled themselves to accepting. How many times have you heard the phrase “three bids and a buy” to describe the satisfactory threshold of engagement deemed to be compliant?
Why would buyers accept such an impoverished view? Because that is their “lived experience.”
There are many reasons why suppliers don’t respond to RFPs and RFQs. If we consider with empathy the position of the suppliers, it’s a miracle that anyone responds.
One, it can be expensive to respond to a bid solicitation. Depending on the size of the project, there can be tens or hundreds of questions. This requires pulling people from the line to get into a conference room to brainstorm over the response, or it might entail hiring a consultant for tens of thousands of dollars. This is especially true when the bid solicitation document is written poorly, meaning that it is grammatically incoherent, it asks the wrong questions (revealing the buyer’s lack of domain expertise), or both.
Two, the money a supplier ploughs into developing a well-reasoned response is in the context of uncertainty. Buyers are asking suppliers to spend their own cash to put together a document replete with invaluable market intelligence and confidential information, with no guarantee of winning the contract. (At least, there’s not supposed to be a guarantee.) Smart suppliers convene a committee to decide whether to bid or not, weighing such factors as the size of the contract in question, its profitability, the nature of the firm-to-firm relationship, the incumbent status, etc. Make no mistake. This is an investment committee.
Three, the supplier often thinks that the buyer has determined the outcome before issuing the RFP, inferring this from the questions in the RFP or the behavior of the buyer. This is the complaint we hear most often. We speak with suppliers who tell us that they refuse to participate in RFPs. They’ll cite common rules-of-thumb like, “If the first time I’m hearing about the project is when I receive the RFP, then I have lost already.” Many suppliers, burned by bad buyers in prior RFPs, see the whole process as a rigged exercise in pretending to comply with the buyer organization’s rules. In many cases, they’re not wrong. Or, salespeople see their role as “shaping” the RFP in favor of their solution, applying the logic that every battle is won before it is fought.
Four, buyers defeat themselves by running low-bid auctions, competing exclusively or predominantly on price, instead of having a holistic approach to value. We wrote about this here. Buyers may think that they are saving money in the process, but they often end up incurring far greater expense over the lie of the project with this approach.
Generative AI is the cure for all four of these problems: supplier expense, uncertainty, fairness, and complexity. Generative AI is the path to making RFPs and RFQs competitive.
In the future, generative AI will make it easier to write well-informed, easy-to-understand bid solicitation documents. It will compose automatically and instantaneously a first draft for suppliers, effectively lowering the cost of participating in a reverse auction to the cost of the technology and some incremental editing time. And it will perform the initial review of the proposals, developing a cardinal ranking before the buyers’ committee can opine, thus anchoring the discussion to a dispassionate, unbiased discussion, with a transparent process that makes suppliers believe. Challenges become a thing of the past.
Watch this space. At EdgeworthBox we’ve been collecting data to fine-tune large language models for precisely this purpose. This is all part of our broader effort to help B2B buyers purchase the right solution, from the right supplier, at the right price. Give us a shout,