Vendor negotiation is all about win-win solutions for both parties

IT vendor management strategies involve successful vendor negotiations. Anwer Bagdadi, senior vice president and chief technology officer, CFC India Services Pvt. Ltd., gives us the inside info.

Anwer Bagdadi
Anwer Bagdadi

What are the basics to remember before starting an IT vendor negotiation session?

Before beginning any IT vendor negotiation, consider the product category. Are you buying a high-impact, A-class category product? Or are you procuring services which are fair impact or B category in nature? You might be buying a low-value, yet high-impact C-category product. Or is it commodities of the D category? So the vendor negotiation will depend on your procurement activity's categorization.

Secondly, perform a similar analysis of your IT vendor. Evaluate existing vendor partners in terms of vendor quality, relationship tenure and nature of the relationship. Have there been pending issues, or did you observe good highlights beneficial to your organization?

Last, but not the least, is when there is a new IT vendor. Evaluate what you require, and how to categorize that particular IT vendor.

Once you've done that, a two-tiered team is required for your negotiation team. The first set of people should know commercial capabilities, contractual impact and ways of handling. The second set comprises technical (IT) and domain experts. Once you've done that, conduct an indexing of the IT vendor.

How do you leverage existing vendor relationships?

For every IT vendor that you deal with, always remember that both of you must have a sort of win-win situation. Now, the degree of victory on either side is dependent on aspects like demand and supply. Basically, both must have a win-win situation.

You cannot suck the vendor's blood and have a good working relationship. So for an existing IT vendor relationship, you need a transparent contract which details how the relationship is established.
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You cannot suck the vendor's blood and have a good working relationship. So for an existing IT vendor relationship, you need a transparent contract which details how the relationship is established. Where and how is it going to work? What are the operating mechanisms of relationship interactions and escalation points? How can an exit take place? If extension or changes are needed, how will those take place? Can you manage commercial renegotiation between contracts?

What about leveraging your peer CIO network for IT vendor negotiation?

You can utilize the CIO network for credibility and credential matching. It can also be used for developing new IT vendors or services that you may or may not be aware of. In addition, based on volume demand and timing, you can get good purchasing leverage with a good network. Vendors are also happy if you are well connected, since you become their reference point.

How do you leverage volume demand?

Volume demand works twofold. One is that you can work volume demand on a collective basis. If you are part of a group company, you can use volume as a part of the group procurement, which brings benefits to the company and the vendor. Volume demand can also be brought in for a large negotiation.

Is there any other aspect that you would like to mention on the vendor management front?

The post procurement cycle is the most important aspect of any vendor relationship. Let's assume that you've bought about multimillion dollar worth of wide area networking equipment. You've had a good negotiation, and you are happy with the vendor, product, services and the contract.

Many of these active components need to be serviceable for a period of three to five years. They require constant maintenance and care. Now, if your relationship has been a onetime transaction, you might have got fantastic benefits in terms of money and delivered services. However, on an ongoing basis you may not be able to get what you want. That's why I earlier referred to the transparency of contract along with change points, amendment points and escalation points. Those are very important.

You must have a relationship meeting at regular periods to evaluate the services and products, as to whether there's a need for changes. Based on this, you ensure that the next services or procurements that you select reflect the reality.

Typically, the relationship meeting should be held at least every three months. The meeting might last only half an hour, but it must have a fixed agenda to check fulfillment of your expectations.

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