Choosing between an easy renewal and greater savings.
Today’s post is by Dave Wenig, Vice President of Sales and Services at SafeSourcing Inc..
We all have choices to make when it comes to managing our responsibilities. In procurement, we face choices with every purchase. When we enter into a new agreement, we have choices. When we renew an agreement, we have choices.
In this post, I’ll focus in on just one major choice that procurement professionals face when it comes time to renew an agreement with a vendor. Clearly, a renewal offers the purchaser an opportunity to review the current agreement and decide whether or not they intent to continue working with the vendor. This is also an opportunity for the vendor to make changes to the agreement, very commonly in the form of price increases.
However, the question of whether to renew with the incumbent vendor or not is a bit premature. The better question is around how we want to evaluate the agreement to make that decision. SafeSourcing clients know that they have access to a powerful set of eProcurement tools that will help them attain the best pricing possible with the best terms. If your vendor knows that you have these eProcurement tools, it’s natural that they might attempt to persuade you not to use them.
Do you want to negotiate the agreement fully, including using your eProcurement tools, or do you want to accept the offer that the vendor made for renewal? This question becomes a bit more complicated if the vendor offers a discount if you were to renew without eProcurement. What would you do?
Let’s assume that your vendor offered you a renewal and agreed to reduce your pricing by 10% and hold that pricing for a year and left all the other terms the same. That’s a pretty good offer, right? Maybe. If they offered that in a non-competitive environment, then I’d bet that they have additional margin beyond the 10%. The reason I believe this is because we see this scenario play out time and again with our clients. The client tells the vendor that they are going to host an RFQ and the vendor says there is no need and offers better pricing to avoid the process. Our average savings are well over 24%. Before making a decision to accept the vendor’s offer, it makes sense to talk through what savings levels SafeSourcing expects in a particular category.
It would be very easy to renew and stay with your incumbent vendor. However, knowing that you might be overpaying by 10% or more should give you pause. We always recommend that we discuss the category details and consider whether an RFQ is the right choice to help you make this decision. We usually recommend running the RFQ after that discussion. Either way, our services are always risk free, so there is very little to lose. So, what would you do? Would you use the available eProcurement tools and negotiate the agreement fully?
We’re here to help you make the choice that’s best for you and your company. Let’s talk before you agree to a renewal.
For more information, please contact SafeSourcing.