Michael Kuenne, VP, Procurement & Technology Services, Extended Stay America
Prior to being involved in enterprise Procurement, I was one of those department leaders who thought I knew best on how to partner with suppliers, negotiate agreements and derive the most value out of relationships. However, over the past several years, I’ve learned that a true partnership with an internal Procurement team can yield significant value and provide win/win outcomes for all involved.
Break the Stereotype
Many times, Procurement groups may become involved in IT because of corporate guidelines or mandates that contracts must be reviewed or certain thresholds must be met prior to moving forward with a new vendor. While well-intended, this can unfortunately create friction and cause these two organizations to view each other as “necessary evils,” and artificially create the perception that their goals are in direct conflict. Procurement teams can see IT teams as wanting to control every aspect of their vendor base because they believe Procurement doesn’t understand the nuances of technology and the implication of changes. Likewise, IT teams sometimes see Procurement as the “cost-cutters” who will sacrifice anything to save a few dollars—regardless of requirements and impact. In reality, I’ve found that with open communication, in most cases, neither perception is accurate.
If you consider each group in its purest form, the groups should be quite complementary to each other. The IT team’s goal should be to provide solutions in an efficient manner to enable the organizations they serve to be more productive, operate at a lower cost, or perform some function they couldn’t previously. Likewise, Procurement is also about efficiency—not only on the cost side, but also in defining process and having rigor around requirements. Having Procurement involved can also help apply some more pressure on a supplier without impacting the more personal long term relationship between IT and the supplier. As such, I prefer to look at Procurement as driving VALUE, as opposed to just lower cost since the least expensive product could be a poor value. Many of us have all likely made those lowest cost decisions in our career, probably resulting in undesirable outcomes. However, a well-defined approach to engaging vendors with structured processes, and fair terms and conditions with cost as one component can yield tremendous value.
“By leveraging some of these ideas, you may find that Procurement can be a partner to help your IT organization"
In the same way a technician follows a process to provision a server or allocate system access, a Procurement professional can structure an agreement to drive maximum value.
Get Involved Early
In many cases, Procurement may be invited late in the process when a contract has almost been finalized, or multiple rounds of quoting have already been done. When this happens, the ability for them to impact change is significantly lessened since most of the negotiating leverage is gone.
Instead of involving Procurement as one of the last phases, consider getting them involved early in the process. By doing this, they will have much more runway to help negotiate pricing and terms, but they also can provide insight into what other organizations have learned when sourcing similar items. Just like IT professionals, most Procurement professionals have an expansive network they leverage to keep up-to-date on current pricing trends.
Once such example was a recent engagement involving sourcing EMV (chip & pin) credit card terminals for 600+ locations — something many readers of this article can likely relate to due to the recent liability shift in merchant card agreements. In this example, an RFP was conducted with multiple hardware providers, followed by a reverse auction which yielded some great savings. However, potentially even more valuable than the savings achieved was learning the nuances of the providers’ different architectures and how that would impact our overall support of the solutions. Additionally, after evaluating the RFP responses, the IT team was able to ask additional clarifying questions that may have been missed had a formal RFP not be done. In a way, using a Procurement methodology helped supplement the requirements definition phase of the technology-led initiative.
Look Beyond Traditional Categories
While the sourcing of common categories such as PCs, servers, storage, etc. may seem easier due to some levels of commoditization, it is important to remember that many software and professional services can be good candidates for review by your Procurement team as well. When is the last time you actually dug into that enterprise agreement to make sure you are getting value for everything that was included? Even if your internal Procurement team may not have that specific area of expertise, it is likely that they are aware of providers in their network that may be able to help, and can likely provide references as well. In addition to software agreements, don’t forget those outsourcing or hosting agreements that may have been signed several years ago.
Finally, don’t underestimate how various terms and conditions in your contracts can yield a great benefit to your organization without changing the underlying goods or services. For example, organizations that need cash flow could push a supplier to a net 60 or higher payment term, providing some much-needed flexibility. Conversely, organizations who desire better pricing can sometimes get 1-2 percent discounts for paying net 15 or sooner. There are even new ePayables solutions that can yield savings for your organization, all with minimal IT effort and involvement. These can be win/win solutions as there is minimal change on the IT side, but Procurement still provides value by helping improve overall agreement terms.
By leveraging some of these ideas, you may find that Procurement can be a partner to help your IT organization get more done by ensuring you are getting the most value from not only your new purchases, but existing relationships as well. Who knows, you may even save enough to get that new Flash Storage Array you’ve been eyeing.