How to negotiate a better supplier deal
- Posted:
- 14:07 12 Dec 2003
- Topics:
- IT Supplier Relationship Management | IT Management
BOOK: Purchasing and financial management of IT, by Frank Bannister
Useful tactics to deliver value for
money and improve your supplier relationships.
The relationship businesses have with their suppliers is a key part
of financial management.
Firms should aim for good and mutually beneficial long-term
relationships with their suppliers. This is particularly true in
IT, where an organisation can be critically dependent on one or
more of its IT suppliers, even without any significant
outsourcing.
The more mission-critical and complex the system, the more
important the role of the supplier is likely to be, and the more
important the relationship with them will be.
Large organisations have a considerable advantage when buying from
suppliers. By virtue of the scale of their purchases, they can
often obtain discounts and deals that are not available to the
smaller buyer. Nevertheless, there are tactics that all
organisations, including the smallest, can use to get better value
for money.
Economics
Find out as much as possible about a supplier's economics and use
this information. If the purchaser knows the supplier's margins,
this may help in gauging how much of a discount can be obtained.
Service companies that sell their staff time by the hour, such as
software houses and consultancies, prefer block bookings, for which
they will give discounts.
Competitive bidding
Use, or threaten to use, competitive bidding. This is an effective
tactic, but it must be used judiciously. Continually threatening
suppliers or making them frequently re-quote for business can be
counterproductive in the longer term.
Reference site
Offer to be a reference site that the supplier can use to
demonstrate its offering. This can be useful where new technology
is being introduced or where a supplier wants a flagship
site.
However, being a reference site can be a nuisance. It can mean a
steady stream of the supplier's potential customers coming to look
at the purchaser's IT system, which can be disruptive as well as
time-consuming.
Get a negotiator
Use a consultant or systems integrator to do the negotiating. With
two parties, it is possible to use "hard man, soft man" tactics
with the consultant playing for a hard bargain and the user being
more willing to compromise, or vice versa.
Long-term agreement
Consider a long-term agreement. Competitive bidding and tendering
is expensive. Over time, a good IT supplier will expect to win
about one competitive bid in every four.
The cost of the three failed bids can be high and the supplier's
margin on the successful bid must cover this cost. Where suppliers
do not have to bid, they can sometimes be persuaded to pass some of
this risk margin back to customers by way of a reduced price.
Timing
Many computer salesmen work on a commission basis. This is based on
targets, or quotas, which have to be hit within certain a
period.
As the end of year or quarter approaches, sales teams are often
anxious to achieve their quotas and deals can be struck. This
normally requires that the purchaser has the finance available and
can take the product immediately.
Purchasing and Financial Management of Information Technology
by Frank Bannister is part of the Computer Weekly Professional
Series. To order, call 01865-888180
www.bh.com/computerweekly
