This article is the first half of a two-part series regarding software negotiations to ensure you are fully prepared, creating competition, getting alignment with your stakeholders and controlling the negotiations.
As Benjamin Franklin once eloquently put it: “By failing to prepare, you are preparing to fail.” These wise words are applicable to many facets of life, including business – whether you’re preparing a presentation, proposal or most certainly, a negotiation. In any spend category, planning ahead is imperative for procurement professionals. It’s the difference between accepting current terms and conditions of your existing contract and having the opportunity to seek more competitive pricing and service levels by going to market – especially when it comes to software.
To make sure that you are fully prepared for the upcoming negotiation, plan ahead and gather the appropriate information. My rule of thumb is to start prepping 90 to 120 days in advance for anything that is not business critical. If it is a product like Microsoft, Google or a larger Original Equipment Manufacturer, and it is relied on throughout the business, I recommend starting the process at least six months prior. Planning ahead will help inform your sourcing strategy as well. Compiling a baseline (current state) will help you understand if an RFx is the best option or whether to proceed in direct negotiations with the incumbent/identified vendor.
During this time you will want to gather the following information:
- Pricing: all recurring costs associated with the solution (price per unit, quantity, etc.)
- Contract information: contract term, constraints, SLAs, etc.
- User detail: number of users, utilization, user groups, etc.
- Geographical requirements: regions in which the software is used
- Use of software: the business case around the use of software and any active modules or potential modules end-users may want to adapt
Now that you gathered the appropriate data to support your sourcing strategy, it’s time to start evaluating the market and creating competition. Depending on the actual appetite or willingness of your stakeholders to make a move, you will want to discuss with them the potential sourcing strategy or strategies, along with your recommendation, to align on the appropriate path forward.
Strategies to consider include:
Request for Proposal (RFP): Best suited for a net-new purchase or incumbent vendor that has not been performing at desirable levels. Requires the most level of effort and should primarily be considered if the stakeholders want to move away from the current supplier.
Request for Quote/Information (RFQ/RFI): Lower level of effort and helpful to get a quick pulse of the market to understand if pricing with incumbent is in-line. Not recommended for a net-new purchase.
Direct Negotiations: Most applicable to renewals with incumbents or net-new purchases where it was pre-determined that another vendor would not be considered.
Regardless of the sourcing strategy, it is always a good practice to include the incumbent vendor (if applicable) to maintain a positive vendor experience and understand that if they were to be selected, what their pricing is, for a comparison to the baseline and competitive bids.
Throughout your timeline, it’s crucial to collaborate with your stakeholders to determine the best sourcing strategy and ensure their voice is heard during the decision-making/vendor selection process. A proper sourcing time table will allow you the ability to collect the right quantitative and qualitative information from your end-users. The next step in the process is gaining their alignment. In our upcoming post, we’ll discuss how to align stakeholders to keep your sourcing strategy on the right track.