How to negotiate a better supplier deal

Useful tactics to deliver value for money and improve your supplier relationships.

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

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