All About Value!

August 31st, 2016

In the name of cutting costs, have projects become all about the price?

 

Today’s post is from our SafeSourcing Archives

One of the knocks that the eProcurement/Strategic Sourcing world has always had from customer and suppliers alike is that it reduces things down to a price-only model that takes nothing else into consideration.  Being a professional in this industry for many years I can honestly say that this is a legitimate issue.   Price, however, is an element that cannot be ignored and when suppliers decline to participate in sourcing events until they can meet with the customer directly it generally means that they need time to prove their value before introducing a higher price that they think is justified by their value.   Since there must be a balance, today we will look at some ways you can collect those elements in order to understand the value behind price aspect of the proposal.

Lead with the RFI – The biggest pushback from vendors asked to participate in sourcing projects is in areas like services, software, or specialized one off projects.  The reason for this is due to the fact that suppliers in these categories generally feel that the offerings among suppliers are too different to be effectively compared to each other.  Whether that is due to pricing model differences, statement of work differences or their approach to quality, they will be hesitant to participate in any event that leads with a discussion on price.  That is why taking the time to engage suppliers in a Request For Information will them each to differentiate themselves from the others before price is brought into the equation.  Doing this will also help fill in any gaps of understanding what the business really wants and needs.

Detail what you want – With the results of an RFI in hand, businesses can better define what they really want.  Because each company will add services or extras to justify their costs that others will not, it is important to define from the collection of information from the vendors and independent research what the business really needs.  Strip away the extra services that are unneeded and add those extras that the business never thought about.  If the better fit for the business is to obtain pricing for software based on users rather an enterprise license, specify for the next round, or conversely collect pricing for both from all vendors in order to see what each supplier can offer.

Create the Scoring Formula In Advance – Many times organizations will run sourcing projects where only a portion of the overall vendor scoring has to do with the price and the rest deals with other factors such as experience, industry reputation, references and extras offered.   Determining this formula well in advance of the project beginning will help keep the integrity in place for where the project ends up heading especially if incumbent vendors are involved that could unduly influence the outcome.  In some cases price may be as much as half of the possible scoring while in others, finding the right solution with the right support and features will outweigh its cost.  Regardless of the formula used, everyone should buy into it before the project is started and at least a portion of the offering features, price, and experience should be used in determining the final score.

For more information on how we can help you develop a strategy that helps your organization make decisions based on value and not just price or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative.  We have an entire customer services team waiting to assist you today.

We look forward to your comments.

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