00:00:00 Doherty introduces RFPs, RFQs, and RFIs
00:02:15 Procurement documents and accidental policies
00:04:31 Impact of poor software vendor choices
00:09:00 Comparing software to hiring executives
00:12:53 Ineffectiveness and redundancy in RFPs
00:19:25 High stakes and decision justification
00:26:35 Critiques and improvements to RFPs
00:31:17 Leveraging technology and vendor responsibility
00:35:36 Call to action
Summary
Lokad’s Conor Doherty (Head of Communications) and Joannes Vermorel (CEO) challenge the conventional wisdom of procurement processes, questioning the necessity of RFIs, RFPs, and RFQs. Vermorel argues these documents are more habitual than essential, suggesting that procurement involves both indispensable and arbitrary steps. Vermorel criticizes the RFP process for software procurement as fundamentally flawed, likening the selection of a software vendor to hiring a C-level executive, where nuanced judgment trumps checklist approaches. He observes a corporate culture of risk aversion, where documentation trumps critical thinking, leading to decisions that protect careers over company interests. Vermorel provocatively recommends eliminating the RFP process in favor of informed, independent judgment to better serve company needs.
Extended Summary
In a recent dialogue on LokadTV, Conor Doherty, Head of Communication at Lokad, engaged with Joannes Vermorel, Lokad’s CEO and founder, to dissect the intricacies of procurement processes, particularly focusing on the roles of Requests for Information (RFIs), Requests for Proposals (RFPs), and Requests for Quotations (RFQs). Vermorel provided a contrarian perspective on the traditional procurement practices that are often taken for granted in the corporate world.
Vermorel began by delineating the conventional procurement stages: RFIs are utilized to gather information, RFPs to solicit proposals, and RFQs to obtain pricing. However, he provocatively suggested that these documents, while common, are not inherently essential to the procurement process. They are, in his view, more akin to operational habits than indispensable elements. Doherty pressed Vermorel on this point, seeking to understand how such widely accepted documents could be deemed non-essential.
In response, Vermorel drew a distinction between what he termed the “essential” and “accidental” components of a process. He argued that certain steps in procurement are indeed unavoidable, but others, such as the insistence on multiple signatures, are arbitrary and not fundamental to the operation’s success. This led to a broader discussion on the importance of selecting the right software vendor, a decision Vermorel likened to hiring a C-level executive for its potential existential impact on a company. Yet, he maintained that the decision-making process need not be constrained to a specific format, such as the RFP.
When Doherty inquired why the RFP process is often taken lightly despite the high stakes involved, Vermorel pointed to a culture of risk aversion in large organizations. He observed that executives tend to favor extensive documentation to justify decisions, as it provides a semblance of due diligence, rather than engaging in critical thinking.
Doherty acknowledged the desire for justification in the RFP process, given the risks involved, but Vermorel highlighted a troubling disconnect. He argued that employees often prioritize personal safety over the company’s best interest, choosing vendors that are safe for their careers rather than those that are optimal for the company.
In conclusion, when asked for recommendations to improve the RFP process, Vermorel proposed a radical solution: eliminate the RFP process altogether and rely on informed judgment. He posited that this would encourage individuals to think independently and make decisions based on a deeper understanding of the company’s needs, rather than adhering to a rigid, process-driven approach.
Full Transcript
Conor Doherty: RFPs, RFQs and RFIs are seen as essential tools in the procurement process, theoretically enabling a fair bidding process and helping every client select the correct vendor. But as I said, that’s in theory. Here to help me unpack that theory is the founder, Joannes Vermorel. So, Joannes, RFQs (Request for Quotation), RFPs (Request for Proposal), and RFIs (Request for Information), what is each of these documents and importantly, how do they actually differ from one another?
Joannes Vermorel: They primarily reflect various stages of the initiative. The bottom line is that, let’s say a company wants to buy something very expensive. First, they will ask for information, then they want to have a gist of what you can offer, that would be a request for proposal, and then finally, when you close the process, you will get an RFQ where you actually get a price tag attached to every proposal from every vendor. So, bottom line, it’s the same initiative at different stages. But with a caveat, I would say it is not something that is essential, it’s just an accident of the way many modern companies operate. It’s not something that is fundamental or the only way to get to the final goal that is desirable in the present case, the betterment of supply chains.
Conor Doherty: That might be the quickest we’ve ever come to not disagreement but me pushing back because immediately you’ve just said it’s not essential. What do you mean by it’s not? How could the stages you’ve just described not be essential for a client company?
Joannes Vermorel: We have to really differentiate between elements that are essential and those that are just accidental or arbitrary. When you have something that is essential, you can’t bypass that, it will not work, there is no other way. So let’s say you’re in e-commerce and you want to deliver goods to your clients, the goods have to be physically moved from one of your premises to the location of the client. This is essential, you can’t bypass that. If you bypass that, for example by putting all the goods in a store, that’s not e-commerce anymore. So there are things where there is no workaround, it is essential.
And then there is accidental, for example, let’s say that in the company we have decided that above $100,000 of spending, three signatures would be needed. That’s accidental. I’m not saying that it’s bad, but clearly this is not essential. The purchase operation could happen without the three signatures, maybe two would be enough. So it is accidental in the sense that it is arbitrary to a large extent. You could even say that no signature at all would be required.
It might seem surprising, but nowadays for example, many companies have automated the purchase orders and there are sizable purchase orders that pass without any direct supervision. So again, I’m characterizing the accidental complexity and all those things, RFI, RFP, RFQ, are definitely on the side of the accidental. It’s one way to look at the problem, but certainly not a grand requirement written in the sky.
Conor Doherty: I think it was in one of your supply chain lectures you said, and I’m paraphrasing, that for a company, selecting the correct software vendor is essentially an existential choice and the implicit meaning there is making the wrong choice is essentially an existential threat. Were you being hyperbolic or do you genuinely believe choosing correctly is the difference between survival and demise?
Joannes Vermorel: Absolutely, I mean it’s as consequential as choosing a C-Level executive. If you pick an ERP that is a catastrophe, it is going to do as much damage as a bad CEO. I mean literally, there are cases like for example Target Canada that went bust with a bad inventory optimization project. So it is very possible with a piece of enterprise software to just kill a large company. It did happen a couple of times in history. Nike was almost killed by i2, another enterprise software vendor, back in 2004.
So even some of the most valuable worldwide brands could be potentially killed by a very bad case of bad enterprise software. So yes, it is existential and that means that you really want to make a good decision. But that does not presuppose the way you will get to this solution. I’m just saying that this choice matters a lot, I’m not saying that thus you should decide that way or that other way.
Conor Doherty: Well, for the sake of simplicity, for the rest of the conversation we’ll use RFP as a catch-all for all the documentation, just for ease of designation. So what exactly is it specifically about the RFP process that you find so undesirable or so ill-fit for purpose?
Joannes Vermorel: We are talking about software. There are no two software that are alike, even software that have the same names like two ERPs, two CMS, two CRM, two WMS, whatever. Even two software that fall into the same category, they vary widely. They vary in thousands of dimensions. So we are comparing apples to oranges, that’s the biggest challenge.
You cannot think that you have a single problem. Every vendor you will talk to sees the problem in a different light. So you have a collection of not just different solutions that you’re picking, but different problems. Large complex software products for the enterprise are very frequently quite opinionated about the proper way to even see the problem. And if there is a vendor that says “Oh no, we adapt to all situations”, it’s even worse.
That means that their opinion is to have no architecture whatsoever, to make no choice whatsoever, and so you’re going to have something that is like the worst of all possibilities. So no, by necessity, if you want to have some integrity, some consistency in the way you solve a problem, you need to have an opinionated perspective on the nature of the problem itself. And then your solution just reflects that.
Just think of an architect for a building that would say “You know what, I have no opinion, we can do a tall building, a flat building, a subterranean building and we are just going to do the average of all of that”. No, it doesn’t work. You can’t average multiple buildings into one, you can’t average a car and truck into something that would be the middle, it doesn’t make sense.
At some point, you need to have an opinion so that your solution makes sense. So bottom line is, it is not like RFPs. If you want to just buy something that is a commodity like a grade of cement, that’s fine. Then you can do your RFPs, you have a super narrow problem, all the deliverables are essentially the same, that’s a very low dimensional choice. It’s how much, when will it be delivered, and what will be the tolerance for the grading that you want.
Same thing if you want to have gold delivered. Yes, you can have a tiny few variations, but it is very much the sort of thing where you can literally have an RFP and have a perfect answer to that. But software, it’s very different. We are talking of literally thousands, if not tens of thousands of dimensions. So you cannot compare them. And again, I think the best way to think of a choice of software would be to think about choosing the next C-Level for an open C-Level position in your company.
You will get options. I can get this person, vastly more experienced, but maybe this person has less energy because he’s in his 60s. This one is much less proven but much younger, more energy. And then we have this person that seems even better, but this person suffered a very bad divorce 6 months ago so maybe this person is going to be not top of his shape for the next year.
So I mean you have so many considerations. And if you pick a person for a C-Level, this person will come with its own strategy, with a vision for the company, a way to organize the different departments, maybe some changes in terms of methodologies and whatnot. So you’re picking a whole package. And when you pick a C-Level for a large company, usually those people have staff. So it’s not just a person, it’s a person plus half a dozen of loyal lieutenants that just move along with this person.
So you’re not choosing actually one person, you’re choosing a team. And you see where I get it, it becomes like “Okay, I have this person, this person seems absolutely brilliant, but he or she doesn’t have a team. What about this other person that is maybe less brilliant but that seems to have an absolutely fantastic team that is ready-made and that comes with this person, how do you choose?” And so to select a C-Level, companies do not go into an insane RFP process.
Conor Doherty: Well, that’s the thing, that’s why I like the analogy. But someone could easily point out, if Lokad wanted to hire a new CEO, you would put out an advertisement, you would shortlist some criteria that you want, and that would be the initial vetting.
Joannes Vermorel: Is it because you see, that’s typically for a complex hiring position. That’s absolutely not how people would do it by listing criteria. I mean, yes, you would have vague criteria such as relevant experience or whatnot. That would be the same for software. Do you operate in the same space? Okay, fine, you do supply chain. But beyond that, people don’t realize what goes into those RFPs. They are typically between two to 600 questions and people don’t even read the questions.
I know that people haven’t even read their own question because when we answer the questions, we can see that the questions are completely full of typos and atrocious spelling mistakes, which prove that nobody was even bothered to read the questions beyond question 50 or something. I would also say there are redundancies. We’re talking about trivial mistakes and questions that serve no purpose as well.
I mean, we had the most inane questions like, “What are your security procedures to make the room that archives the faxes produced by the fax machine fireproof? What are your standards in terms of fire defense for this archive room?” That was, by the way, something that we just got a few weeks ago. Obviously, nobody is using a fax machine anymore. If you still do, then you probably have another problem to solve that is even more urgent than optimizing your supply chain.
But the bottom line is that the equivalent for a person would be a question such as, “Have you ever gotten a B minus grade in math while in college?” And that would be, “Yeah, maybe I don’t remember. I’m not even sure. Let me check. How relevant is it today?” Or, “Can you, off the top of your head, give me the protagonist of ‘The Tempest’ by Shakespeare?” And if you don’t, then you don’t have the sort of cultural background that we would expect from you.
You see, the thing is that you get a ton of cheap questions where you learn nothing. That’s the problem. You get 600 questions and typically they are very narrow-minded questions. For example, for a person, it would be, “At what age were you when you first had to fire your first subordinate?” Interesting question, but what is the context? Because if you take, “Oh, I was privileged enough to start firing someone at the age of 21 and it was out of sheer incompetence on my part,” maybe that’s not a super good answer. So, you see, the idea is that you can have a very open problem that is very ill-defined and that you can shortlist 600 binary questions essentially into your way into making the proper decision is complete nonsense.
Conor Doherty: Well, actually, because I don’t want to make it too theoretical, I want to make it as practical as possible. We have, in fact, curated a few illustrative questions. Anyone who’s ever answered an RFP or any such similar document will be familiar with examples like this. So, I thought I would simply just read a few. These are verbatim from texts from documents. You don’t have to give what the answer that you gave in the text, but simply explain why exactly is this a bad question and why does it not contribute anything to the ultimate goal of selecting the right software. I’m going to start with what is probably my favorite one, “Do you have a formal code of ethics?”
Joannes Vermorel: Again, Enron had a very detailed, lengthy code of ethics that was recognized as the gold standard at the end of the ’90s. It turned out that it was one of the biggest frauds in history and their corporate culture was rotten to the core. So, you’re asking a question where everybody is going to signal, “Are you honest? Yes, I am honest.” That’s it. The people that will answer, “No, I’m not honest,” are going to be lunatics and the people that say yes, well, it’s either true or they are liars, but you can’t tell which. So, it’s useless.
Conor Doherty: Second question, “How does the solution rationalize forecasting divergences to the original plan in the presence of stockouts?”
Joannes Vermorel: That’s typically the sort of question that somebody wrote to look good. That was a committee where the committee was surveying questions and then they say, “Oh, we need better questions,” and then there was somebody say, “Oh, I have a good one. I’m going to impress the audience,” and then boom, this question made its way into the document.
The thing is that it would take a whole chapter to start from what is even the perspective of the vendor on forecasting for supply chain. What are their roles? And that you have so much to unpack first that it would take literally a chapter or two. What do you mean by forecast? What do you mean by rationalize? I mean, if you want to answer this question, it’s a book. It’s like, “Give me the protagonist of ‘The Tempest’ by Shakespeare.” And if you don’t, then you don’t have the sort of cultural background that we would expect from you.
Conor Doherty: That’s again a perfect segue because the next question I was going to give was the all-time classic, “What is your forecast accuracy?” And the thing is, as you just said, there’s no short answer and I think that underlying a lot of these questions is the presumption that there is. And in fact, anything other than a short answer to the question, you’re sort of hiding something.
I asked a simple question, “What is your forecast accuracy?” You can’t tell me. And even though, as you just said, to properly answer the question actually requires more than a sentence, that should be seen as, “Well, you’re giving me your time and you’re trying to inform me,” when in fact it might be viewed somewhat punitively. It’s yes or no, it’s binary. You said no, you don’t have a code of ethics.
There might be a very practical reason why you don’t, but you said no, therefore move on to the next candidate. But they might well have been the appropriate candidate for you, but the process itself did not permit the kind of expansion. So, my question to you now is, when we stitch all these together, the examples, the philosophy, and the existential threat, why is the process so cavalier when the stakes are so high?
Joannes Vermorel: I think part of the problem that we have with modernity is that large organizations have, to a large extent, become incredibly large, literally frequently an order of magnitude larger than what they were, let’s say, 50 years ago. The giants of today are absolutely massive. Large companies nowadays operate in dozens of countries at once. Again, if you go into, let’s say, the end of World War II, there were very few companies that would operate internationally.
You would have companies that were literally importers or whatnot, so they would operate cross countries for very simple things like managing imports or transport or these sorts of things. But besides that, they were very local. Even if you look at electrical companies, the US market at the time, end of World War II, you would have the General Electric that would operate very dominantly in the US and you would have different companies in Europe that would operate doing their own things.
Nowadays, you have giants like Siemens that are all over the place and that are much bigger than they ever were. So, the bottom line is the landscape is, we have large companies and taking decisions, people have become incredibly risk-averse. And so, people, and the idea that you will take a decision without being able to articulate exactly why you took this decision, people are just super scared.
And why I say people, I mean executives in large companies. So, there is this fear of taking a decision that you can’t justify. And by the way, it’s to a large extent the business of consultants. A decision has already been decided, made by the management, but they just want 50 pages and 100 slides to back it up. So, they hire consultants just to do that, so that they would say, “You know what, if the decision was bad, it was the consultant’s fault.”
But the bottom line is, you see, people are afraid to have those seemingly arbitrary decisions that they can’t fully justify. But I would say this is the nature of the problem. You cannot ever fully justify a choice that is as sophisticated as picking a piece of enterprise software versus another, just like you can’t ever fully justify why the board, for example, cannot fully justify why they picked this CEO versus the 100 other candidates that were available on the market for the job of CEO. It doesn’t mean that it’s a bad choice, it’s just that at some point, there are things that are too subtle. And just think of it as, could you try to find objective reasons, if we go back to Shakespeare, why Shakespeare is a great op?
If you want to have check marks, it’s very difficult, it’s very elusive. And yet, there is a consensus that it’s one of the greatest. That’s the sort of thing. It’s not because you cannot put things in boxes that it’s no less true. And that’s this idea of rationalism, which is kind of a disease of the modern mind. It’s not rationality, it’s rationalism. You’re not too sure about the way you could fully justify your decision, and so you want to fall back on checkboxes because it looks like something more rational, but it is not.
Conor Doherty: Over the course of this conversation, we’ve said that choosing the correct software vendor is an existential choice, or choosing the wrong one is an existential threat. People are risk-averse and just want to fall back on justification. Isn’t that perfectly understandable? I mean, isn’t it understandable to want justification if the consequences of being wrong are the demise of a company?
Joannes Vermorel: Yes, but the problem is that it’s not exactly that people want to play it safe to avoid the demise of the company. This is not what happens in practice, unfortunately. Most people care very little about the ultimate survival of their own company, unless they own the company. You see, very quickly, you fall back onto, “Is it safe for me if these things blow up?” And that’s again, if you pick a vendor that is large and convincing, super safe for you. Even if it was an absolutely terrible decision and you kind of know it, you just know that it’s not going to be a threat to you.
For example, the vendor who literally killed Target Canada, you would think okay, the same vendor also cost 500 million euro to Le a couple of years after. So first, they went on and then delete a large company in Canada and then they went into Europe. That was SAP by the way, the half a billion that were lost into the exact same technology. So you would think okay, now we have like two public disasters of epic proportion, normally nobody would ever pick again this.
But then you have a big vendor, so big name, so people say well it’s safe, it’s not. You already have proof. You see that the sort of things where you have divergence between is it safe for the employees to pick the option or is it safe for the company and those two are very distinct, very distinct. That’s an illusion to think that that’s the same thing, this is not.
Conor Doherty: Well, if we push on a little bit and I don’t want to fall into the trap of saying, well if someone provides a critique they must also have a solution. That’s not true, a critique can be perfectly valid on its own terms. So we’ve critiqued, if you were to make changes then, because you have very practical and theoretical objections to the RFP process, if you were to make changes to it just to improve it a little bit, not to fix it, just a little bit, what would it be?
Joannes Vermorel: First, if you just remove it and replace it by nothing, gut feeling, you will still get a better outcome. So literally, I mean this is the sort of things where those processes are so dysfunctional than a gut feeling and potentially just an open debate with five people in the company and then you forget all of the process.
You keep it completely informal, you organize as many interviews as you feel necessary with the various vendors just like you would for if you were to interview for a CEO. How many interviews do you need? As many as it takes. Maybe after two, you’re absolutely convinced that this person is the one and maybe you think that no, you need 10. There is no rule. So I would say forget all the rules, just use your judgment and that will already be a vast improvement over a rigid process.
Because you see, the problem with RFP and that’s probably the biggest problem is that suddenly people stop to think. They stop thinking, they just follow the process. So you have corporate drones that just do the stuff in sequence instead of thinking. If you have no process, everybody is forced to pause and think for themselves and ask questions like, “Am I hearing something that makes sense? Does it look credible? Does it fit with our strategy? What is my gut feeling? Do I really think it will work? Do I think it will be competitive over time as a solution?”
Forget about asking the vendor those questions, they will lie to you. So you just, you know, just and then how many meetings? Well, it really depends. Maybe depending on, for example, the type of vendor or the sort of solution that is being proposed, maybe you will need fewer meetings or more meetings.
One of the things is that when you go for an RFP, every single vendor has exactly the same number of meetings. Why is that? You have vendors that say, “Our product, all the documentation is online. You don’t need to meet to discuss what is in there. You could just check.” So obviously, if everything is already online, why do you need to organize a meeting to ask questions that are already answered online?
So you see, that’s the sort of things where again, if you just pause for a second, stop thinking in terms of RFP, suddenly whatever comes to your mind, if you’re not a complete idiot and most likely if you ever reach the position of being an executive in a company, the company trusts your judgment. That’s why you’re in this position in the first place. So chances are that you are capable of exercising your judgment and make spot decisions on how to steer the process. And yes, it feels like very unscientific, but it’s okay.
Conor Doherty: It occurs to me there’s potentially another way. Let me sketch something out. Instead of refining the human involvement in that process, for example, having lots and lots of meetings as many as it takes, if all this information is available online, let’s say we have extensive FAQs, couldn’t a company leverage AI, for example, chat GPT-4 program, something to scrape through all the information on your website and provide answers to all of these questions?
Joannes Vermorel: Yeah, I mean that’s the futuristic answer to this question, although the future is not evenly distributed so it’s already possible. I mean we have some stuff like that in the pipes that are working already but not complete at load. But the bottom line is, even before putting any tech, I’m always completely amazed by the fact that companies who try to save don’t even spend an hour trying to have a look at what is on the website of the vendor. And again, if the vendor puts nothing, it’s a red flag, it’s a massive red flag. People say, “Oh, I am so experienced, so competent, but I can’t tell you anything about what I do or how I do it.” Very strange, very strange.
So my message would be, first, do your own due diligence. When it comes to software, the interesting thing is that most of the stuff is online and when it’s not online, it’s a massive red flag, massive. So if you can’t do your due diligence to a large extent on your own, then you have a problem. You should be able to do that, and not with a consultant, you yourself. And people think it’s so technical, it’s not.
I mean again, you don’t have to be a master chef yourself to go to a star restaurant and enjoy the meal and to see if the star restaurant is any better than the fast food. It’s much easier to form an opinion on the quality of the stuff than doing the stuff. So yes, that’s the easiest way is just first do the first steps yourself and people would be surprised how far they can go just on their own.
Conor Doherty: Well, that’s again a really good point because I know this is true of many companies but I’ll just talk about us for a moment. A huge amount of time and effort from both of us, for example, gets invested in FAQs which again are a different class but not entirely dissimilar to RFPs.
Again, questions that we inbound questions and in those FAQs for security, for change management, for functionality, a tremendous amount of time is spent unpacking here’s our perspective, here’s a top-level answer, yes or no, and here’s all the information that you can’t fit into a single 60 character Excel cell. And my question is, is the responsibility more on vendors to promote the existence of these documents? Because if more people do that, then the RFP process disappears potentially.
Joannes Vermorel: What I see is that right now, very few prospects of us ever spend half an hour to read the any website so that they don’t know us, they don’t know our peers. And interestingly enough, when I usually we start with the clients and we ask very basic questions about the nature of the legacy solution that is being phased out, people know next to nothing about it.
So there is a state of incredible ignorance about those things which is very peculiar. Again, if you were to hire a C-level executive, you would try to know this person. Is this person married or not? Yes, it doesn’t seem like super relevant at first but if this person is married and the spouse is living in another country and this person wants to visit the kids frequently, then there will be frequent travels, it’s kind of unavoidable.
So my take is that, forget about those checkboxes, they are in the way. You will never, they will never be credible. Even if one of the questions happens to be relevant, it’s just out of sheer luck. It’s just the story of the clock that is broken but still right twice a day, same sort of things.
Conor Doherty: Well, Joannes, I don’t have any further questions. I think we’ve unpacked RFPs, RFQs, and RFIs in detail. So thank you very much for your time and thank you very much for watching. We’ll see you next time.
