Vendor Management Tips: Getting the Best Deal

Computerworld |

From how to prepare to how to perform at the bargaining table, negotiation experts offer their most effective tips for driving a hard bargain with technology vendors.

Do Your Homework
Know your vendors. Doing some background research on your vendors will not only allow you to assess their strengths; it will help you pinpoint their weaknesses. You want to know exactly how hungry they are for your business. Ask for a list of recent contracts won and lost by the vendor in your RFP. What they tell you -- or don't tell you -- can be very revealing. -- Susan A. Friedmann, CSP, The Tradeshow Coach (www.thetradeshowcoach.com), Lake Placid, N.Y., and author of Meeting & Event Planning for Dummies (For Dummies, 2003). Friedmann works with event planners to improve their meeting success through coaching, consulting and training.

Use the accounts payable master to identify all of your vendors. Few IT organizations have a master list of vendors, their products, contract terms and how much is spent. Although it cannot help you determine what you buy, accounts payable can help you identify all of your vendors. -- Bart Perkins, a Computerworld columnist and managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. He was previously CIO at Tricon Global Restaurants Inc. and Dole Food Co. Contact him at BartPerkins@LeveragePartners.com.

Manage the overall relationship with each vendor. Start by consolidating all contracts with, IBM, IBM Global Services, etc. Next estimate (just as vendors do) how much you are going to spend with each vendor. Finally, ask each supplier to take 10% out of the entire "strategic" relationship. -- Bart Perkins

Start every vendor selection with a clear understanding of why you want to undertake this project. Clearly articulated motivations form the foundation for vendor selection, performance metrics and contract terms. Increase your probability of success, by getting the stakeholders together to articulate and weight the motivations. -- Bart Perkins

Step into the vendor's shoes. See yourself and the opportunity offered by your organization to the vendor from the vendor's perspective. This must be done as a formal exercise and should be supported by a role-play or simulation. You will gather more useful information from doing this than from almost any other preparation activity. -- Jan Potgieter, CEO, The Negotiation Academy-Europe Ltd., London (www.negotiationeurope.com)

Metrics are the foundation of your vendor management program. You get what you measure, not what is in the contract. Choose metrics that support your goals and reward the behavior you want to encourage. -- Bart Perkins

If you have not already outsourced to India but are still considering offshore outsourcing, evaluate other countries. India's booming job market has raised salaries 15% a year, leading to inefficient western conditions, such as high turnover and bad rush hour traffic. -- Bart Perkins

Get the Price Right
Set goals. Approach negotiations with a target price in mind. Set this price by comparing the per-unit costs paid by your industry's top competitors to the price you're currently paying. Your vendors should be aiming for that top price. Don't be satisfied with a 10% price reduction if your competitors get the same product for 40% less. -- Susan A. Friedmann

Never offer to split the difference. Instead, try to get the other side to offer to split the difference. "How far apart on this are we? We're not that far apart. There must be some middle ground on which we can both agree." When they offer to split the difference, you can reluctantly agree to their proposal, which serves their perception that they won.
Danger point: If you offer to split the difference, they could get you to split the difference again.
Solution: Get the other side to offer to split the difference. You may be able to get them to split the difference again. Even if you don't, you still make them feel that they won. -- Quoted with permission from Secrets of Power Negotiating, by Roger Dawson (Career Press, 2000). Contact Roger Dawson at RogDawson@aol.com.

More for your money. If your vendor refuses to budge on price, ask them if they'd be willing to provide extra services or support for that price. Give special consideration to services that will save you time and money. -- Susan A. Friedmann

The lowest price is not always the best price for the buyer. While aggressive negotiating makes sense, don't squeeze your supplier so hard that they lose money. If your contract is not profitable to them, you won't get good service and even worse, you may drive smaller vendors out of business. -- Bart Perkins

The power of money. Is your vendor willing to come down on price if you pay cash? If you pay now? Oftentimes vendors are more than happy to lower prices in order to have the use of your money immediately. This tactic is particularly effective if vendors are in a poor cash flow position. -- Susan A. Friedmann

Bargaining-Table Tips
Kill them with kindness. The best negotiators are calm, polite and personable. Work on building a relationship with your vendors, so that they feel good about going the extra mile on your behalf. Losing your temper or making threats alienates the very people you want on your side. -- Susan A. Friedmann

You make the first offer. Most people wait for their counterpart to make an offer and then try to negotiate the terms. In the vast majority of cases, this is an enormous mistake (especially if you are the buyer). By throwing out the first offer, you set the "anchor" for the conversation and force the other side to justify any changes to what you are proposing. Moreover, a substantial percentage of the time, you will find that if you stick to your initial terms, you will often get what you ask for because the vendor wants to keep your business. -- Shahzad Bhatti, founder of SAB Negotiation Enterprises (www.sabonline.com) and a former negotiation instructor at Harvard Law School

Never say yes to their first offer. When you say yes to the first offer, you automatically trigger two reactions in the other person's mind: Reaction 1: We could have done better. If they are eager to accept our first proposal, we could have gotten more. Reaction 2: Something must be wrong. If they are saying yes to a proposal that we didn't think they would agree to, there must be something going on that we don't understand.
Danger point: You have formed an opinion of what their proposal will be. When it's better than you expected, you are so relieved that you make the mistake of saying yes too quickly.
Solution: Determine in your mind that you cannot say yes to the first proposal because you must get the approval of a higher authority. -- Roger Dawson

Frame negotiations appropriately. We know that individuals are more likely to make decisions and take action when faced with a potential loss than when faced with a potential gain. Be sure to point out what your vendors stand to lose by not doing business with you as well as pointing out the benefits of doing business with your organization. -- Jan Potgieter

Your greatest source of power: alternatives. The biggest fear of any vendor is always that you will walk away and choose one of their competitors. As a consequence, when negotiating any contract (whether it's a new relationship or a renewal of an old one), always have alternatives to the party you are negotiating with ready. If you feel like your counterpart is not offering you the best possible deal, bring up the possibility that you might go elsewhere and watch their offer improve. -- Shahzad Bhatti

Project that you're prepared to walk away. The No. 1 pressure point in negotiations is your ability to project that you are prepared to walk away if you can't get what you want.
Danger point: You have fallen in love with the car or home for which you're negotiating and the seller knows it.
Solution: Before you go into negotiations, research your options and let the other know that you have options. It doesn't mean that you won't get the one that you want. It does mean that you'll be a more powerful negotiator, because the other person will sense that you have options, and that gives you power. -- Roger Dawson

Do not lie -- ever. When we conduct negotiation training, some of our clients ask when its a good idea to lie in negotiations. From a moral perspective, this question is obviously shocking. Even from a practical point of view, however, its not a good thing. Consider your best case scenario if you lie: You get away with it, they sign the deal and then they hate you. During the following weeks, months and years, you will find that your reputation will take a dramatic hit -- costing you far more on a personal and financial level then you will ever gain by virtue of the initial lie. To make matters worse, more often than not, you won't even get the initial deal because they find out you lied before signing the contract which, of course, does serious harm to your credibility within the negotiation itself. Lying is never worth the cost. -- Shahzad Bhatti

Patience is a virtue to a negotiator. The longer that you can keep the other side in a negotiation, the more chance you have of getting what you want. When you're beginning to think that the other side will never come around to your point of view, think of the tiny tug boats that can move those huge ocean liners around -- if they do it a little bit at a time.
Danger point: The longer you are in a negotiation, the more likely you are to make concessions. Because your subconscious mind is saying to you, "I can't walk away from this empty-handed after all the time I've spent on this."
Solution: When faced with the temptation to make concessions to the other side, forget about what you have invested in getting to this point. You cannot recoup that whatever you do. Your only consideration should be, "Is it smart to move forward from here?" -- Roger Dawson

Silence. In negotiation, it's often what you don't say that makes the biggest impact, especially when dealing with "hard" issues like numbers or risk allocation. It will take no more than 15 seconds of silence (and usually less) before your counterpart gets uncomfortable with the silence and starts giving you more information or, if you are already discussing the deal, improves his offer. Why does this work? There are many complex reasons but, ultimately, it boils down to a couple of things: First, most people interpret silence as unhappiness (think of the "silent treatment" punishment some give to kids); and second, if someone is in a position of selling something, they are most nervous about someone saying no. When people don't get information back fast enough, they get nervous and start filling the "gaps" by speaking themselves. -- Shahzad Bhatti

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