THE ELECTRONIC REQUEST FOR PROPOSAL – known as the eRFP – used to be pilloried by suppliers because it did not allow communication with those putting out the bid. Now, however, it has become de rigueur and is punctuated with meetings, usually at the beginning and end of the process.
The eRFP allows buyers to reach their entire hotel database in one go, embracing chain hotels on the global distribution system as well as independent properties. They can send out an invitation, indicate what they expect by way of a response, and enter the requisite number of rounds of negotiations, closing date and the deadline for loading rates.
Jan Jacobsen, global travel manager at insurance giant AIG, says eRFPs are essential to his programme. “The upside of eRFPs is that we have a clean negotiation process and everything is documented in one place.”
But isn’t there an advantage to negotiating preferred rates with individual hoteliers? No, says Jacobsen. “The value doesn’t compensate for the overview and control you have with electronic RFPs.” This applies to air, hotels and travel management companies (TMCs). AIG has 64,000 employees, 25,000 frequent travellers and 927 hotels in the programme.
The Ford Motor Company utilises eRFPs, largely for hotels, where having a mature programme and high compliance (86-87 per cent) helps. “I think that is quite rare but it means hotels are probably engaged with Ford, because they know that if we select their hotel, they will receive the business we have committed,” says Stephen Swift, Ford’s corporate travel and international relocation manager for the EMEA region. “In London, for example, we have tens of thousands of room nights and they know they will get a percentage share of that.”
An electronic process also reduces the cycle and makes it easy for suppliers, who know when to expect it and what format they are getting. And it is easy for them to circulate the eRFP within their organisation. Clients can also log in and check what’s going on.
A QUESTION OF LOGIC
Many companies do less negotiating for air because they are using lowest logical fare and discounts are increasingly hard to come by unless you have a huge spend.
American Express GBT uses a template for air and car rental, and is building an online tool for the former. “Hotels are quite saturated but air is seeing quite a lot of traction,” says Parth Pamnani, senior manager at the TMC’s global consulting division. “That is where the majority of opportunities are because there is greater competition on the airline side, with increased capacity from Middle Eastern carriers, and falling oil prices. Some of our clients have between US$100 million and US$1 billion spend, so lowest logical doesn’t feature.”
One buyer for an international advertising firm that BBT talked to uses a standard template for air, but she says because carriers often do not use booking classes in the same way, it is difficult to do the process electronically because she can’t compare like-with-like. She tends to have a three-year legal agreement and then renegotiates fares annually.
Consultant and managing director of Inform Logistics, Ian Flint, feels TMCs are also best approached non-electronically. “Electronic RFPs work best for hotels, but when you get into the complex world of TMCs, which includes data management, reporting, online booking and so on, it is not as easy to define closely and, therefore, not very successful.”
He sends a form to potential TMC suppliers, which gives information such as the goals of the client company, where they are located, expenditure and transactions, “so that the TMC can assess and explain how they would service it”, he says. The information this elicits includes location of offices, and whether these are owned, franchised or affiliated; specialisation in corporate/leisure, and so on. Once he has narrowed down the most likely contenders, he invites them to present in person.
But whether face-to-face or via webcam, at the beginning of the process, a meeting of all potential bidders gives potential suppliers access to any information they need. “Before we launch an RFP, we host a supplier meeting, conference call or webinar, where we outline what we are looking for. All suppliers will be invited – our philosophy is that everyone gets the same message before the eRFP goes out,” says AIG’s Jacobsen.
“All parties tendering for that commodity programme will get the answers to everybody’s questions, so there are no secrets – and suppliers can put their best foot forward when responding to the RFP.” Jacobsen also has direct discussions with providers at the negotiation stage.
To get the best from an RFP, it is important to balance asking all the required questions with ensuring that the bid document is a manageable length. The process costs both suppliers and buyers time and money, so it is in the interests of all parties to have targeted questions to elicit concise and apposite responses. Similarly, it makes sense to cap the fields for answers, in order not to receive a veritable novel of a reply, and to pre-populate fields with last year’s information, so that suppliers can easily update it, and then add questions predicated on travellers’ safety and security requirements.
Safety questions feature large in RFPs, and local contacts play a valuable role in assessing new hotels to ensure they comply with all requirements. This is also an important part of communications with travellers, where education is paramount.
A useful adjunct to all this is to assess and re-assess your programme throughout the year, including feedback from travellers and suppliers, so that you already have good market knowledge and a clear idea of what you and your travellers need by the time the RFP comes around.
RFP BY COMMITTEE?
To that end, it is worth working out who should be part of the process so that all areas are covered. The buyer, the TMC, suppliers and travellers are the starting point. “There is also someone from every country where
Ford operates, who talks to the HR person in each region to help us locally, so that we find out about properties they are using that we don’t know about,” says Swift. For a multinational company, this gives a good insider’s view and also alerts buyers to a spike in use; for Ford, that might be during a car launch.
AIG receives local feedback from country general managers and has a hotel council, comprising the company’s top 500 travellers globally, who comment on the programme and what they need in certain markets. Legal departments, insurance and procurement are also candidates for involvement, as is IT, to ensure compatibility of systems and to cover data protection matters.
Received wisdom regarding length of contract varies considerably. Two years works “really well” for Ford, though it depends on the willingness of the hotel or chain to accept a two-year rate, and the company goes out to tender annually.
Ian Flint recommends a five-year contract for TMCs, with a three-year breakpoint and an annual review, especially where companies have a number of suppliers worldwide, because it takes a while for them to bed in. AIG has minimum two-year contracts for hotels, three for airlines and three-to-five years for TMCs.
“We have longer contracts so that suppliers can penetrate the business and move travellers into a new environment,” says AIG’s Jacobsen.
INVOLVING YOUR TMC
A TMC’s purchasing power is likely to be much stronger than any individual buyer’s. “We use American Express consulting to do our hotel programme for us,” says Swift. “Year-over-year, for four years, they have demonstrated savings and value-add in terms of increased amenities and LRA [last room availability]. They are a fantastic business partner and it’s cost neutral at the very least. And they provide really good data analytics. We can drill down to hotel level so that we can see how many times we are getting the preferred rate; how many times we are getting lower than preferred rate; and, most importantly, how many times we are paying more than what we negotiated. That’s very powerful data that we’ve never had before. Now we can manage our programme in real-time.”
“Having everybody involved gets the best solution,” says FCM’s head of sales, Graham Ross. “Individual buyers trying to push their spend, volume and negotiating strength to a supplier only have their spend to work with. If we are negotiating on their behalf, we have their trends, their benchmark and what we have done with other companies; and our hotel sourcing team has got multiple brands, covering retail and corporate, so we can see all the parameters in the industry.”
FCM saw a 25 per cent year-on-year rise in the number of hotels it sourced for customers in 2016, and results are good: “For one client, we have just produced an 8 per cent reduction on hotels they had on contract; and a fourth year hold on rates at one of their top London hotels,” Ross says. “For another client, 52 per cent of hotels agreed to hold rates for the next year – and they have 159 hotels in the programme. People are nervous because prices are forecast to creep up in 2017, so we are looking at that to see what value-add or holding rates we can get.”
Ross recommends travel managers take a flexible approach because there can be unexpected options to negotiated rates. A company in the energy sector might normally take marine and offshore fares, which are higher because of the flexible conditions: bookers can hold them longer, cancel or change them, and they allow extra baggage. “But somebody going to Seoul to work on a rig can use one of our retail fares with a Saturday night stay and provided the conditions are met, that would give a significant financial saving upfront,” says Ross. “They are unlikely to have to change the ticket because workers tend to go to rigs on rotation, and companies that take the lowest logical fare are willing to accept that risk.”
RFPs do not have to be the all-consuming exercise they once were. Provided buyers know what they want and suppliers can be confident they will receive the promised business, the bidding process can be a natural extension of the relationship that has served all parties well to date. The electronic element just removes complexity and adds clarity.