What You Didn’t Learn from Your Last Round of Vendor Bids

Here’s a business problem you’ll probably recognize: Even though you are conducting regular reviews of vendor agreements and prices, you almost never see any significant savings.

Businesses are regularly advised to see their suppliers and vendors as partners in helping them grow their business. As such, it’s important to make sure that the partnership is mutually beneficial by regularly reviewing prices and terms.

The typical vendor pricing review goes like this:

• Add up current costs and review the current agreement.
• Take new bids from similar vendors.
• Compare the new bids against the current agreement.

The typical result is little to no reduction in overall pricing. Typically, what you learn from this exercise is what vendors are willing to offer, not what they’re capable of offering.

Most businesses regularly go through this ineffective process simply because they don’t know a better way to do it.

Costs are sneaky

Recently, we were chatting with the manager of a food services company who revealed an interesting insight: No two customers ever pay the same price for a bushel of beans.

How can the same bushel of the same beans delivered at the same time have a different price for every customer? The factors that impact the cost of any product vary widely, but for this example, the cost of a bushel of beans was affected by

• how many bushels the company was buying.
• what else the company was buying.
• who the customer was.
• the customer’s relationship with the supplier.
• whether the salesperson needed to make quota.
• the buyer’s personal knowledge and experience within the food distribution industry.

All of those things are factored into the final cost of the product, but there is no way to review that or convey it consistently if you’re an outsider looking in.

Expense Category Experts: Smart locals who speak the language

To get the best possible value, you have to have deep insight into the industries that are serving your business needs, but it’s typically cost-prohibitive to have an on-staff expert for every expense category in your company.

An Expense Category Expert is a person with extensive (10-15 years) experience in a specific industry with at least five of those being within executive management.

What do you get from an evaluation by an Expense Category Expert?

• You learn how they repackage your agreements in a way that motivates vendors to deliver greater value.
• You understand how they communicate in the vendor’s language and appear as “one of them.”
• You receive significant cost reductions without sacrificing quality.

An Expense Category Expert has access to information that you don’t. They have cost-of-goods and pricing benchmarks, as well as the vendors’ true support capabilities. They understand the motivators that work for vendors within a particular industry.

Until now, you’ve been operating under the assumption that vendor bids show you the best pricing they can offer. However, it’s more likely that the locals (or those “in the know”) get the best deals.

To get real visibility into costs, you need the insights of an inside expert. Take a look at our Case Studies to see the savings you may be leaving on the table.