E-Commerce

Work fairly but firmly with vendors to yield win-win results

Believe it or not, I want the people with whom my organization does business to make reasonably good money. I despise the "low bid" process and, while price is always going to be an important factor in a decision, it's rarely the only factor.

How often are you told that you have to accept the lowest possible price on equipment that you need? If you have to work under this stipulation, are you really working to the best interests of the organization? Would a better tactic be to build a real relationship with a vendor that might include them becoming a trusted partner of your organization rather than just a reseller?

Personally, while I refuse to overpay for goods and services, I also don't find it in my organization's best interests to ask for the world either. In fact, I don't begrudge vendors making money at all.

Negotiate in good faith

Just because I want to make sure my vendors make money doesn't mean that I immediately roll over when I get a quote on a project. Even when working with the vendors that I consider partners, I periodically spot-check pricing and contract details and I do push back... pretty hard sometimes, but always fairly. Moreover, I want those vendors that I consider partners to make some money on a deal. I actually worked with someone once who told me that he didn't feel that his vendors needed to make anything beyond what they put into a deal plus enough to cover operating costs. If they were making more from the deal than they were getting from him, that was a problem. The goal to him was to get them to break even and nothing more.

I don't see it that way.

Why would that guy's vendors do anything to go out of their way for him when the need arises? There's almost literally nothing in the deals for them except getting continually badgered into settling for a break-even situation or, at the best case, a very meager margin.

Don't interpret what I'm saying as a desire for my vendors to make a killing on me either. What I want to maintain is a balance. I want my vendors to make enough money that they'll go out of their way for my organization, but it would be completely irresponsible of me to overpay. I do check to verify that the pricing we receive is fair. In fact, for most of the vendors I use, I rarely find better pricing than what I'm getting from them anyway. I'm aware that my vendors register deals with manufacturers in order to obtain better discounts on the back end of the deal, and most of the time, at least a portion of this additional discount is passed along to us, and the vendor/reseller keeps the rest. Fine with me! It's a win-win situation. I still get really good pricing, and I get to continue to work with a vendor that works with me when it's needed while they make a few extra bucks on the back end of the deal.

The great part about establishing certain vendors as partners is that these vendors:

  • Already know what to expect from the negotiations process;
  • Understand my organization's needs — both technical and financial;
  • Are willing to go out of their way when the need arises.

An example

I recently negotiated a relatively significant software and services contract to expand the use of one of our primary software products. The contract included pricing for software licensing, implementation, and maintenance. I knew going in that the maintenance figure would be nonnegotiable, and the implementation costs were, to a point, direct and fixed costs to the vendor. Sure, they make good money on their services, but due to the size of the contract, they had already provided us with a reduced hourly rate. I did, however, ask for and receive a good discount (an additional 10% of the already significantly discounted price) on the actual software licensing. From my perspective — and I think, theirs — it was a win-win situation. They got a pretty good-sized deal for multiple new software modules along with a permanently increased revenue stream (maintenance) and a customer tied even tighter to their software platform. They'll also make a good profit on the services side of the equation. Frankly, it's sort of tough to negotiate too deeply with a sole-source vendor like this one, so I was happy with the end result.

Another example

For years, I've been working with an absolutely fantastic HP Procurve reseller who provides us with almost all our networking gear. When the time came to outfit some new dorms, we decided to implement wireless-N.  Unfortunately, for Procurve, that's a rip-and-replace choice. At the very least, we were going to need to add yet another wireless controller to our infrastructure to support the wireless-N gear while our older wireless controllers would support the existing A/B/G gear. The catch: We've already had to replace our controllers once before, when we decided to implement redundant controllers. Our reseller, understanding our reluctance to fork over additional dollars for another new controller (plus all new access point licenses), seriously went to bat for us with HP and got pricing that took the sting out of the project. Over the years, we've worked very fairly (but firmly) with this reseller, so that when the time came to pull out the big guns on our behalf, our salesperson went well beyond the call of duty.

Demand tight contract language

I do trust my partner vendors... to a point. I still read every word of contracts or purchase provisions sent my way and make absolutely certain that those provisions protect me and my employer from harm that could come with vague language. In a recent contract I executed, for example, I struck the phrase "all reasonable attempts will be made to keep daily costs at acceptable levels" for a contract that includes significant travel for a software implementation. I asked the vendor to come back to me with a daily per diem rate instead. While I'm sure that the vendor will be careful to keep costs reasonable, I needed a hard upper limit; I hate vagueness. The vendor complied, and we have a tighter contract that, I think, is still more than fair to both parties.

Trust, but verify.

Summary

I don't think that any of this is rocket science; it's simply a part of the due diligence process. I'm very fortunate that I work in an environment that doesn't require us to publicly solicit bids and force us to accept the lowest possible price for software, hardware, and services. While we have to make sure we're receiving good pricing, we have the opportunity to make sure that the total package is a good one for us.

Obviously, some organizations are required by law to accept the low bid, whatever the consequences.

The key takeaway is this: While I hate some sales tactics (i.e. cold calls, pretending to care about my family on the first visit, etc.), for those vendors with which I'm doing business, I want them to make money so that they stick around and find it worthwhile to keep doing business with me.

About Scott Lowe

Since 1994, Scott Lowe has been providing technology solutions to a variety of organizations. After spending 10 years in multiple CIO roles, Scott is now an independent consultant, blogger, author, owner of The 1610 Group, and a Senior IT Executive w...

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