Beware of the buyer

by Viv on March 12, 2008

As I write, a multinational company has invited 20 e-learning suppliers to a 2 day workshop as part of a process that will whittle the list down to 6 preferred suppliers. Whilst it’s up to each company to decide how it wants to procure its e-learning, the raving stupidity of their approach could not pass without comment.

Lets assume that the costs for each vendor of writing the proposal, developing a working demo and attending the workshop is £6k and that £240k of work will be distributed amongst the 6 preferrred suppliers. There’s probably £8k of profit to be had on a Turnover of £40k. So that’s asking each vendor to spend £6k on a 12% chance of getting £8k back, or a net gain of £2k. For the suppliers that bid and lose, then that’s £6k x 14 = £84k of costs down the drain.

Why’s this a problem to you? Well, if e-learning industry vendors are collectively taking a hit of £84k and gaining £12k, then that £72k will have to be loaded somehow onto the costs of future work that you might be commissioning. Otherwise the vendors will simply go out of business.

Sales managers who get commission on the basis of Turnover won’t thank me for pointing this out, but if a company is screwing you this hard at the procurement stage, then they’ll probably be every bit as difficult to deal with during the development stage.

I’m pleased to say that the guys at Academy Internet withdrew from this farce before it cost any more. Whilst this means that we’re upping the odds that our competitors will win this work, they are most welcome to it – we have no intention of crawling over broken glass for the privelege of losing money. We would far rather work in a constructive partnership with clients on a win win basis, and we have the success stories to prove this.

Conation Technologies research quoted at the ELN meeting a couple of years ago, showed that procurement costs are, typically, some 10% of a contract’s value; while vendors spend, typically, some 10% of the value of any invitation to tender in responding to that tender. Whilst this level of cost is more sensible than the costs above, this is still unsustainable for the indsutry.

Whilst the point of a tendering process is to give your company assurance that it’s getting good value for money, having too long a short list will just add to everyone’s costs in the long run. If you want long term value for money, a good first step would be to limit your short list to no more than 5 vendors…please.

{ 5 comments… read them below or add one }

Clive Shepherd March 12, 2008 at 5:15 pm

Sounds like an ideal input to the eLN’s Practical Procurement webinar on 15th October. It’s about time someone blew the whistle on this scandalous mistreatment by large corporates of small production businesses.

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Nick Rushby March 16, 2008 at 7:34 pm

If anyone wants a copy of the research that Viv quotes here, please email me at nick.rushby@conation-technologies.co.uk

Nick dot rushby at Conation-technologies dot co dot uk

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Rob Hubbard March 17, 2008 at 11:23 pm

This sounds all too familar Viv. As elearning vendors we need to scope the project as best we can at the outset, estimate the cost of responding to the PQQ and/or RFT, and try to guage our chances of success. All too often projects are put out to tender when the decision has already been made on who will get the business. Don’t get me started…

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Mike Bower March 20, 2008 at 10:47 am

About 5 years ago I did much work in trying to steamline the process of procurement in the e-learning industry in the UK. I very nearly got funding from the DfES to get all parties together to work out a fairer process particularly for Suppliers. I gave a presentation to the E-learning Network and the Forum for Technology in Training some time ago and would be happy to share the ground work I have carried out. Please contact me for further information on 01403 864626.

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Adrian Priddle May 2, 2008 at 9:19 am

Sounds to me like strong qualification processes are needed to identify this sort of ‘competitive’ scenario and pull out. Makes a refreshing change to the knee jerk reaction of New Business – Must Pitch!

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