What if you could divert spend from one software vendor to the other at the flick of a switch?
In commodity procurement, this is commonplace. When it comes to buying software, there are a myriad of factors influencing the choice of supplier. Setting standards and implementing processes to enforce those standards is arduous work. However, the best negotiation leverage and the most productive supplier relationships have their roots in a well-defined set of technology standards.
Whereas most other procurement categories can make do with a relatively simple Approved Supplier List (ASL), software is considerably more complex. For an ASL to make sense for software, the choices should be defined at the product/functionality level.
How to Implement an Approved Supplier List Efficiently?
I recommend using industry standard market definitions as a basis for understanding your supply base. Whilst you could use UN product codes, using the IDC market taxonomy has the following advantages:
- Armed with the market research of IDC, you know who the players are in the market segment. IDC’s recommendations can influence your choice of preferred products, or alert you to a new vendor with innovative products.
- Having IDC reports at hand gives you credibility in discussions with your IT organisation about technology choices. A quick read through of an IDC report enables you surprise solution architects by being able to participate in a conversation on the choice of technology.
- IDC’s taxonomy has just the right level of detail for these purposes. You could further subdivide the markets (especially when it comes to security software), but generally IDC is perfect for providing direction on technology choices.
The process of selecting standards has to be done in close collaboration with your IT colleagues if it is to have legitimacy and relevance. You will need an exception process to provide flexibility where required, and having executive sponsorship from your CIO is crucial to ensure acceptance of the standards.
By mapping out your organisation’s supply base in this way, you can spot areas where there is demand but no preferred supplier. Or maybe a product is being used simply because it has always been used, but your organisation could benefit from innovation in that particular market.
It is rare that procurement will approach stakeholders in the IT organisation with recommendations for new technology. There is much kudos to be had for procurement and this approach will enable you to do just that.
Integrate the Approved Supplier List into your Spend Reporting
If you can, include the IDC market definitions on each purchase order line item so that you can later run reports to show how much your organisation is spending in each market, and how much of that spend is with preferred vendors.
An Approved Supplier List as a Powerful Negotiating Tool
As you can imagine, these technology standards then become a precious tool in negotiations with software vendors. Giving a supplier preferred status means that the ease of selling goes up significantly, and they have the opportunity to displace their competitors. You can frame the relationship as a true partnership. Instead of relying on volumes and transactions for negotiation leverage, you can leverage the relationship and future possibilities.
The traditional expectation within procurement departments is that big spend with a software vendor should lead to concessions in a negotiation. That is a overly simplistic view. You might be spending tens of millions on maintenance and support, and, on that basis, expect red carpet treatment.
Actually, software vendors care far more about incremental licence purchases, even if these are relatively small, than they do about repeating maintenance transactions. So offering a software vendor new business allows software sales people to get approvals from their management for concessions that would otherwise not be granted.
Conversely, this approach can be used to threaten unfavourable suppliers with containment and even a loss of business if they do not cooperate.
Are you doing this? Would you like to? Please comment below.
Image credit: “Carrot and Stick” by Bruce Thomson, creative commons, Flickr.com