ATTENTION C-SUITE: Before you ask your procurement team to run on the field, make sure they have the proper equipment.
Typical technology procurement negotiations often result in your company receiving a less-than-optimal outcome. The PAAS team negotiates hundreds of deals per month, and in many cases, clients approach us with these negotiations at the last minute. Our experience allows us to identify multiple factors that negatively influence the procurement process and offer solutions to help. Here is how a procurement negotiation scenario commonly unfolds and the tools with which you can equip your procurement team to ensure success.
The Technology Procurement Process:
Typically, someone in your company has already discussed pricing and committed to a technology supplier so that they have approval to move forward. Then, the procurement team is brought in to finalize the order in their supply chain process. Thus, the pressure is on the procurement team to complete the negotiation within a short timeline, or the supplier threatens to pull the price. This misalignment of goals and lack of communication between the procurement team and other members of the organization already negatively impact the negotiation.
Next, the supplier points you back to your company’s previous discounts. Many customers fall into this quicksand—the comparison of the last deal was X metric, now it is part of Y bundle. So, what discounts are you receiving compared to the last deal? Your only data for comparison is your own spend. Wouldn’t it be better to understand what other companies in the market are spending so you know you are receiving a fair deal?
Finally, the supplier presents their “best and final” offer, which usually means the supplier has researched your company’s prior discounts and subsequently offers a marginal improvement to your current deal.
The Typical Result:
Companies do NOT receive the best deal and terms in nearly all of these cases—while a company down the street receives a discount worth 8% more.
Why is technology procurement so difficult?
Why does technology procurement involve the most complex licensing and pricing models in comparison to other negotiations? Technology suppliers in software, hardware, telecom, consulting, and others, continuously change their licensing models to intentionally confuse buyers.
Further, your procurement team is likely already understaffed and has limited time to properly research and prepare for complex technology agreement negotiations. In order to properly prepare for these negotiations, they need benchmark data, because it is IMPOSSIBLE to be an expert and commit to your finance office that your company is receiving the best deal without relevant benchmark data. As a matter of fact, sending your procurement team into a tense technology negotiation without proper pricing and terms benchmark data is like sending them to football practice without a helmet.
When you ask for 10-15% savings in indirect spend, you must be prepared to invest in tools to help your team achieve these goals.
Technology spend is the largest and fastest growing indirect spend category on the balance sheet. The good news is that means it presents the largest opportunity for savings.
A Better Approach
For procurement teams to negotiate successfully with technology suppliers, relevant pricing and terms benchmark data is critical. Our Savings Desk by PAAS service is a data co-op service that facilitates the comparison of your pricing and terms to others’ in the market. With this service, we create a benchmark analysis within 24 hours and compare your spend data with industry data.
PAAS serves SMB, commercial, and enterprise accounts from all industries and guarantees a minimum 5x ROI on your investment. We provide relevant pricing and terms benchmark data to help validate, negotiate, and accelerate your procurement lifecycle. PAAS can also negotiate on your behalf to ensure that suppliers offer you a fair market price. Together, we can reduce your procurement timeline up to 80% and save 15-30% on your technology supplier spend. Click “schedule demo now” to start saving today.