Automated and Online Purchasing
For many commodity products used by the professional services firm, purchasing is best completed using online services or brick-and-mortar enterprises with an online component. For example, office supplies, coffee service, magazine subscriptions, or related vendors can be easily managed online:
Computers continue to have a major effect on the jobs of purchasing managers, buyers, and purchasing agents. In manufacturing and service industries, computers handle most of the routine tasks, enabling purchasing workers to concentrate mainly on the analytical and qualitative aspects of the job. Computers are used to obtain instant and accurate product and price listings, to track inventory levels, to process orders, and to help determine when to make purchases. Computers also maintain lists of bids and offers, record the history of supplier performance, and issue purchase orders.
Computerized systems have dramatically simplified many of the acquisition functions and improved . . . efficiency of determining which products are selling. . . . Firms are linked with manufacturers and wholesalers by electronic
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purchasing systems, the Internet, or Extranets. These systems permit faster selection, customization, and ordering of products, and they allow buyers to concentrate better on selecting goods and suppliers.5
The vendor manager should establish a single account or point-of-interaction with the chosen commodity vendor and ensure that all approved purchasers throughout the organization have access to the account login information. Many professional services firms fail to aggregate their purchasing, losing potential volume discounts and causing undue work for their accounts payable team and vendor manager.
Often for recurring purchase items, vendors perform automated replenishment by gauging usage and automatically delivering the appropriate items and quantities. Again, office supplies or other perishables such as snacks and soda can be set for delivery with minimal intervention or effort on the part of the internal resources.
Working with Vendors’ Other Customers
An important resource in managing critical vendors, particularly larger vendors, is information sharing with their other customers. There are usually well-established user groups for almost every product or service on the market that has a reasonable-size client base. These groups typically communicate in online forums and web sites. For some of the major products, regional or national user group meetings or conferences can help facilitate communication among users. These groups provide a wealth of information, such as:
• Latest news about the vendors and their affiliated service or product provider partner networks
• Features, functions, and enhancements planned for future products or releases
• Best practices for using current products or services
• Workarounds for common (or obscure) problems
• Assistance with common contract terms and SLAs
• Useful third-party services or products
• Informal answers to common questions
• Direct response and ideas for addressing specific problems
• General pricing and contract terms information
• Shared metrics for vendor performance measurement
While most vendor managers usually pay attention to the “official” vendor-sponsored special interest groups, an often-overlooked and powerful tool for inf luencing vendors and driving pricing discounts is informal work with other
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customers in the same geographic region or industry. More direct interaction with other customers can provide deeper and more candid insights than are likely to be shared in a vendor-sponsored, public forum. Coordination with other vendor customers may reveal specific pricing information, specific SLAs or vendor metrics, legal problems or issues with the vendor, and other information useful in negotiating with and managing the vendor. The best customer partners are those using the same vendor, located in the same locale, but in a different industry. While working with other vendor customers in the same industry can provide highly valuable information on specific applications of the vendor’s products or services, the competitive dynamic usually minimizes the information that each party is willing to share. The vendor manager may want to consider coordinating informal periodic meetings between managers and directors to get together and exchange information as a small group. The information exchanged, particularly on pricing or input to product or service development, can be used to win some concessions from a vendor or to significantly inf luence the research and development process for products. This is particularly true for smaller customers of a given vendor. As noted in the opening to this chapter, small customers often find it difficult to manipulate vendor agendas. By working together with several other small customers, they multiply their leverage considerably. Small customers should take the advice of Ben Franklin in working with other small customers: “Yes, we must, indeed, all hang together, or most assuredly we shall all hang separately.”6
Other sources of information can include analysts, consultants, publications, and even the vendor’s competitors. A detailed list of these information sources is included in a later section of this chapter, which covers information gathering as part of the initial vendor selection process. These information sources (research analysts, Internet sites, consultants, and others) continue to be highly valuable sources of information on the vendor, postselection.
A frequently underused source of information for vendor managers is industry analysts working in investment banks or money management firms.
These professionals are typically charged with having a complete understanding of how a given vendor is expected to perform in the future. One of the most important ingredients for their research is the current opinions and experiences of customers. For this reason, analysts are usually enormously interested in talking with a vendor ’s customers about their experiences, and they may even collect informal surveys to quantify user opinions. These analysts can become a nerve center of information about particular vendors, providing insight into the health of the vendor, marketplace changes, and competitive outlook. In exchange for customer viewpoints and opinions, they are usually willing to share not only their objective third-party opinions concerning vendor direction and performance, but also their published periodic research reports. Further, the analysts are often willing to facilitate the introduction of the vendor manager to other customers for the formation of the informal information-sharing groups discussed previously. While this is a
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highly effective strategy, the vendor in question must be of a size and type to attract the attention of an industry analyst, which limits the number of vendors for which it is relevant.
In summary, the wide variety of information available on vendors with a minimum of research and effort should not be overlooked as a critical component of managing vendors, setting metrics, and ensuring best pricing.
Vendor Recompetes
If the vendor selection process is done correctly and the vendor relationship is properly managed as a mutually beneficial partnership, the need to recompete business should be infrequent. However, it is important to periodically test the market for enhanced products, services, and pricing. A recompete may not result in a new vendor choice, but it can be the springboard to introducing new thinking to an existing vendor relationship or to a firm. As a long-term client once remarked to a services provider, “ We like your services and value the partnership; you just don’t necessarily have the market cornered on good ideas.”
Times to consider a recompete include:
• The end of a lengthy (5+ years) contract because products and services will have evolved considerably, so retesting the market for pricing, product, and service changes is appropriate.
• Major changes in the marketplace in terms of pricing or service quality because newer products or services in rapidly changing markets often improve in reliability and diminish in cost rapidly as the marketplace matures.
• Emergence of additional service providers offering better and /or more cost-effective products and services.
• Step-change evolution in technology, necessitating a new product or service.
• Discontinuation of a product or service, necessitating a new provider.
• Any severe performance problems with the vendor resulting in damage or potential damage to the customer ’s business.
• Significant structural changes at the vendor or client (e.g., merger, acquisition, divestiture).
• Material financial problems at the vendor or client.
• Mandate from firm senior management to investigate additional vendor options.
• Overreliance on a single vendor, resulting in business continuity
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When any of these events occur, a recompete should be considered, but a full vendor selection as outlined later in this chapter should not necessarily be completed. Exhibit 16.5 shows a decision tree for deciding whether to recompete. The first step should be an economic analysis to determine the expected value to be created by recompeting the contract.
The benefits of recompeting should include:
• The difference between the present value of all the expected expenditures from a new vendor and the present value of all the expected expenditures from the current vendor
• Other decreased internal costs (e.g., maintenance, management, training)
• Increased revenue
• Improved control over the business (reduced risk)
In many cases, there are significant switching costs associated with changing a vendor. The costs should include all costs involved with switching between the original vendor and a new vendor. Examples of these costs include, but are not limited to: