On August 9, 2007 Telstra chief, Sol Trujillo, declined to commit to participating in the Federal Government’s competitive tender for a fibre optic broadband network.
It had its funny side. After all, the politicians and bureaucrats in Canberra thought they were doing the tenderees a huge favour. Not in their wildest dreams did they suspect that the company in which they had a substantial shareholding would decline the offer. The Government had been selling off Telstra in stages in 1997, 1999, and 2006 but it still owned 17 per cent. The Government called the shots – or so it thought.
The customer is always right. Wrong. And this is often the case when retailers are on the buying side, not of merchandise, but of anything that makes up their infrastructure.
Retailers are notoriously bad customers. They turn over every penny twice before spending it. This is good. Good retailers watch spending very carefully, and although this applies to all businesses, it is particularly important in retail where profitability is a fragile commodity.
But there are limits, and quite often retailers overstep the mark.
The usual process when buying software is that at some stage in the proceedings, an RFP or RFT (request for proposal or tender) is issued to a number of vendors who are invited to respond.
Retailers regularly adopt this approach. The tender documents vary in length and in detail, from a few pages to several kilograms. These documents take an extraordinary amount of time to prepare and an even longer time to respond to. Sometimes they are issued to only a few possible vendors – say two or three – but this number can increase to 10 or more.
Generally vendors establish how many software companies have been approached so that they know what they are up against and can decide whether or not to respond. But unlike Sol, they invariably feel that they have to respond. Often some vendors have been included on the list to keep the leading candidate honest or be used as a bargaining chip. They have no chance of winning.
From the vendor’s point of view, to respond to these tenders is not trivial. It can cost hundreds of thousands of dollars, and if you come second (or third or fourth) that money is wasted.
Then there are the cases where retailers go out to tender and decide that once all the tenders are received, that they won’t go ahead anyway.
These days must end. It is a significant burden on software companies, which merely drives up the costs.
I am fortunate that apart from working mostly for and with many retailers from extremely large to small, I have also worked for one of the largest software providers and one of the largest consultancy firms – part of the big five in those days.
My proposal is this. One of the (now) big four, sets up a division and gets buy in from all major software vendors and as many small ones who want to join up.
On receipt of an RFP, the vendor submits this to the big firm with an estimate of how much it will cost to respond. The big firm averages the estimates and advises the tenderer the price. The understanding is that whoever wins the tender, will absorb the cost, but the unsuccessful tenderees get paid for their efforts by the tenderer.
Will this work? Absolutely not. Never ever. Because software companies will never cooperate on this basis. So what is the point in writing this article?
The point is that software vendors can take a leaf out of Sol’s books. Simply decline to tender unless you think you have a really good chance. And if you don’t think you have, advise the tenderer that you are prepared to respond for say $150,000.
It will only take a few vendors to break ranks and follow through on this. Their competitors will at first rub their hands in glee. The tenderer will be outraged and tell the tenderee to get lost. But, the stage will have undergone a different setting.
Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702
