If you are considering or about to undertake the acquisition of a new supply chain application, you may find the cover story from Computerworld’s December 6 issue interesting. The topic was How to Negotiate Better Enterprise Software Deals.

Having participated in numerous supply chain software selections, I can confirm many of the article's points from experience.

While the article dealt with software acquisition in general – including operating systems, office suites, SaaS-based sales automation solutions, and enterprise systems – there were several observations that were particularly germane to the pursuit of supply chain applications.

Taking some liberties, I have summarized a few key points as follows:

1. Haggling is a best practice.

Like buying a car from a dealer, prospective buyers should be prepared to haggle for the best deal from a software vendor.

The article gave some tips for pressing a vendor’s hot button by raising the specter of competitors or alternative solutions. I’ll go one step further for supply chain software. There is nothing like a selection process that forces vendors to go head-to-head for your business to help you get the best deal.

You’ll really get the competitive juices flowing if you include arch competitors in the process. All is fair in love and buying software. So don’t hesitate to tell a vendor what the other guy is offering when attempting to extract concessions.

2. Know what to buy.

This may seems like an obvious point. But knowing how many licenses you need to buy for immediate and future use is critical in getting the best deal. Buying more than is needed can result in wasted money. Buying too little can mean paying a premium for additional licenses at a later date.

Supply chain software selections can also inject additional elements into the equation. If suite vendors are included in the mix, there may be other applications that should be considered. Vendors have been known to offer very attractive pricing on secondary applications to get the sale on the primary product in question. Also, some have been know to get creative in offering additional licenses to cover peak season demand.

3. Consider pushing back on maintenance.

For many firms, the reward for completing a selection is the dubious honor paying for all licenses purchased, plus a full year of support and maintenance. Some firms find the total cost of support and maintenance over a five-year period exceeds the initial license value.

Vendors may also routinely increase support costs for older releases. Once you get around to an upgrade, you may be faced with a substantial bill for vendor professional services and modifications. Companies with long or delayed deployment schedules may end up paying for maintenance and support on licenses for years prior to their actual usage.

Questioning any vendor on its support and maintenance pricing will probably result in a serious lecture on the necessity to properly fund new development as well as provide quality support services. But this doesn’t mean that the vendor won’t show some flexibility, especially concerning effective dates and limiting increases in outlying years. If they don’t, you can always mention that you are putting the same question to the other guys.

4. Don’t try to pound the vendor to a pulp.

The final section of the Computerworld article cautioned the reader not to be too rough on the vendor.

Hard nose bargaining is commendable. But getting the rock-bottom price and every desired concession shouldn’t be the sole aim of the prospective buyer. Selecting a supply chain execution or planning package is also about building a long-term relationship with the vendor. You run the risk of poisoning this relationship if you push too hard.

I’ve marveled at the ability of some sourcing and procurement folks to beat software vendors down on price and terms. But you are not buying office supplies or packaging. Totally alienating the selected vendor may result in the delivery of substandard services and support. More likely, it will make the vendor less flexible to work with you in the future concerning any new or changing needs.

The article really didn’t touch on professional services. This is understandable, since it covered office suites and operating systems as well as enterprise applications. But professional services and modifications expenditures can significantly exceed license costs for many supply chain system implementations.

Professional service rates certainly can be the subject of negotiations. But it is more important to place some boundaries or control around the total hours charged. This is a lot more challenging that getting reduced license prices or a deferred date on the start of maintenance.

I think the key to negotiating the best deal on supply chain applications is to fully appreciate and embrace the power you have as a prospective buyer.

Your leverage with any software vendor is never going to be greater than it is prior to signing the contract. You should take full advantage of it.

-- Tom

Resources:

Case Study: Retail Flow WMS Implementation

Tags: integrating, supply chain integration, vendors