Managing Vendors – Articles by Jim Everett

Tips on managing vendors, skills and competencies required

How to lose "added value"

Posted on | September 18, 2008 | CLICK HERE TO COMMENT OR ASK QUESTION

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Clients often do not realize that their actions in the negotiations with a vendor, and how they then work with a vendor, can come back to bite them.

For example, when a client beats a vendor down low on price, and feels they have gotten a “great deal”, what that client may lose is the vendor’s discretionary capacity to add value in areas not included in the agreement. So being a tough negotiator with vendors on price may not always be in the client’s best interests.

Beating a vendor down on price sends a clear message about how much value the client puts on the work a vendor does. It says, “I don’t think you are worth what you are asking.” So the vendor adjusts by delivering a “cheaper” product, or taking away some of the discretionary elements they are not held to delivering. And then when the client later asks for add-ons, or higher service standards, the vendor simply sticks to the bare bones of the contract.

Another example is where a client makes a vendor jump through hoops to be able to perform the job. This can burn up the time that a vendor may have otherwise have been able to put into providing extras, or simply being flexible. Many clients do not believe in helping a vendor, by providing all the background information and knowledge to make it easy for the vendor to deliver. This can be a quick and simple task for the client, since the client already has the information. But it may take a great deal of effort for the vendor to locate and dig out all that information.

Since time is money for a vendor, if that time gets burned up doing extra background work, then it is no longer feasible to add value. The client wasted that opportunity (and sent a message that they do not value partnering) by withholding. And since money is time for a vendor, when the fees are cut back, they have to respond by looking at ways to cut back on time.

“A better price comes at a price”.

“Forcing a vendor to do extra low-value work, means you may lose some high-value extra work”

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