I was thinking back to the practices that I have used for purchasing items for the business. Here are some observations that have helped me purchase at the same level and many times better than larger IT organizations and companies.
1. Establish who is involved in the decision making process
Know ahead of time who has the signing authority for this level of expenditure. As a CIO who has sat at the table, you have already discussed this expenditure with the Executive Team. If it is of limited economic impact, we know our responsibilities and can communicate this internally and to the vendor. If the vendor is speaking to your reports, tell your reports to communicate that the ultimate decision is that of the CIO.
2. Develop a written specification for vendors to bid on
This does not need to be a complicated document. It does need to state the goals, functionality of what you are purchasing, any terms you need, when you want responses returned, ongoing maintenance costs, and the format you want the responses to be in. It is important that you hold vendors accountable to following your format, timing, content, and functionality.
3. Keep your decision open
Developing long-term relationships with your vendors is an admirable goal and works often. You have to keep your vendors honest. They need to continually earn your business and should not be offended when you go out for bids. The bidding process should be fair and protect any trade secrets the vendor may have imparted to the purchaser while delivering their value added. It is ok to assign a premium to the current vendor over the bid received outside. All this being said, vendors have to earn the right to continue to do business.
4. If it isn’t broken, break it and then fix it
Sometime certain cost items should get removed, but don’t. Sometimes technologies change and the vendors do not always offer the new more featured products to their current customers. Even if you do not go out for bid, ask every vendor, every year, if they have anything new you should be considering.
5. Remember the tax man cometh
Ensure that you have taken into consideration the tax ramifications of what you are purchasing. When a bid is received, especially in the telecommunications world, make sure you understand the tax ramifications and that you are comparing apples to apples.
6. Understand the costs to ship
Freight charges can often be negotiated like any other cost. In this time of rising fuel costs, vendors often add fuel surcharges where freight has already been negotiated.
7. Develop objective decision making criteria before reviewing responses
Spreadsheets are great for developing a side by side comparison of vendor responses with your requirements from the specification driving the list of information needed for comparison. You can also use a vendor’s response for this and match all other responses to their format.
Always check references if you are serious about a new vendor. Read the vendor’s terms and conditions. There can be some real surprises in the fine print. Be sure to document all issues discussed with each vendor and use this record to be sure vendors give you all the information you requested. Ask your fellow CIO brethren, they are more than happy to share their experiences.
8. Make decisions based on your schedule but be aware of theirs
Take advantage of signing deadlines that work for you. Do not hesitate to ask for extensions! Know your vendor’s end of quarter and end of the year. They always have a fabulous deal with the catch that you need to sign up before you have done all your homework.
9. Keep a calendar of contract renewal dates and scheduling reviews
Vendor contracts often renew automatically unless you notify them by a specific date, usually 60 or 90 days prior to the end of the agreement. This results in many automatic renewals for the vendor at prices that are not competitively negotiated. Set up a process to review every contract every 3 years and stagger the reviews to spread the work out evenly. Get the person responsible for supervising the vendor involved in the contract review. Be sure to set this schedule up by notice date and to notify vendors on a timely basis. This leads to an orderly review process that keeps your costs in line, and probably more importantly, keeps your service levels up to date with the best available in the market.
10. Hold vendors accountable to what they quoted
Vendors often throw in surcharges and other costs that were not mentioned in the bidding process. Be sure your purchase order and their final bid are thorough and do not allow any other charges except for required taxes to be paid. Your purchase order is the last and most official document in the chain of communications between you and the vendor. Be sure to use it to repeat all the key terms and conditions related to this purchase.
Managing vendors is a lot of work. Vendors do require this level of scrutiny. Substantial sums of money can be saved while assuring the company a high level of service and support.
