Supplier relationship management is one of the biggest challenges for businesses today, especially when it comes to procurement negotiations. Chief Procurement Officers (CPOs) everywhere are being pressured to find cost-effective solutions to procurement, which hasn’t been easy as in many industries, the balance of power has dramatically shifted from buyers to suppliers. According to Deloitte’s 2016 Global Chief Procurement Officer (CPO) Study, 74% of CPOs are citing cost reduction as a strong business priority for the upcoming 12 months, greatly raising the need to achieve cost reductions in many different ways.
So, as a business owner who’s looking to set up a website, how would you go about procuring web development services from a supplier? One of the first things to do – if you haven’t already – is to develop an official procurement policy beforehand, which can be used to guide all of your procurement negotiations. Subsequently, you could carry out a review and analyze all potential suppliers and select those that offer services with prices that meet your budget. There are many ways to come out tops in the savings department when carrying out procurement negotiations with suppliers, but it’s crucial to remember that good supplier relationship management means creating fair value for both parties.
Create a wish list
Web development services are a lot of work, so cost would be a big factor here. The ultimate goal of any procurement policy is to reduce costs, but before you can realise that, it’s important to understand your business requirements. If you’re running a small business outfit with less than 5 staff members, it’s probably not a good idea to splurge on the services of the most expensive web developer in town. A workable solution would be to draw up a wish list of all the requirements you have.
Apart from technical specifications and price, you should also include other considerations such as warranty periods, service-level commitments, late delivery penalties and extended payment terms, among other things. Being clear on every aspect of your business requirements for the website development allows you to enter procurement negotiations with suppliers with confidence. It would also mean that there’s no chance of you being pressured – or worse, hoodwinked – into buying services that you don’t require, or which are too costly. It would be helpful to refer to your procurement policy during this process to ensure that your requirements are in line with the company’s vision, mission and goals.
Review the finalists
You need to be clear on what each potential supplier has to offer. If you already have a few suppliers in mind, put them down on a list and calculate the cost of obtaining the services of each supplier. Be sure to include every aspect of web development, from website design to coding, and also after-sales services. Once you have all the procurement information on one database, identifying the supplier that is within your budget becomes easier. If you’ve narrowed down the list to a few suppliers, review your list and arrange them in order of preference. You now have several alternatives to choose from when it comes to procurement negotiations, and a higher chance of finding the right web development service supplier for your business.
It is believed that a small percentage saving on your largest supplier has a more meaningful impact on overall profitability than a large percentage saving on a small supplier, so be sure to review the list thorough before making any sort of commitment. Also, it’s rare to find just one supplier that will meet all of your requirements, highlighting the importance of having alternatives when it comes to procurement negotiations.
Negotiating the deal
Suppliers whose services come cheap may be good for your company budget, but sometimes, this may lead to more problems if the quality of the services rendered is not up to par. Studies show that most buyers tend to either go for low prices (which may result in you getting poor quality services), or be on the opposite end of the spectrum by choosing quality regardless of the pricing, simply because this is the best ways to protect their jobs. However, it may be wiser to balance the two extremes instead of opting for one over the other, electing instead to go for quality services that is price optimised. This gives you more room to “trade” with existing suppliers so that each supplier has the opportunity to compete with others that you may be considering.
Regardless of whether you prioritise quality or cost, it’s important to ensure that each potential supplier is clear on your needs from the outset, and that you understand the way they operate. This is supplier relationship management at its best, helping you develop good relationships with suppliers who, in turn, would be more willing to help you when it comes to procurement negotiations.
Procurement negotiations don’t end with the inking of the procurement deal. In fact, a good supplier relationship management practice involves reviewing the contract between you and your supplier annually to ensure that the deal still meets your business requirements and company budget, and that the supplier is satisfied with the way the deal has panned out so far. Renegotiating a procurement contract on a yearly basis helps both parties revisit the initial agreement and determine the relevance of the agreed terms and conditions with current business requirements and market pricing.
In the event of a deviation, discussions can be carried out to develop a better agreement that meets the needs of both parties. A procurement policy is a living document, and a fair procurement contract should be likewise as well. Supplier relationship management is all about value creation for both the buyer and the supplier, and having a procurement contract that is up-to-date benefits both parties mutually.
These few steps are surely to help you in saving costs during procurement negotiations. For more professional help, do not hesitate to visit our website!
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