3 Access Points for Creating Financial Value From Vendor Agreement Renewals.
Brian Bahnsen
Sourcing and Vendor Management Consultant
“No sir, that renewal is not worth any additional time…‘small potatoes’. And it is a perpetual license anyway, so what could we possibly gain by looking at this? It’s not worth your time nor our money.”
“Well,” I said, “have you ever heard that old saying, ‘don’t judge a book by its cover’?
That is exactly what he was preparing to do. Nonetheless, maybe with some divine intervention he heard the message and agreed to have a quick meeting.
As is best practice in preparation, it’s critical to review the relevant documentation to “Understand the Landscape” (a concept covered in detail in SeprioU), prior to such a meeting. Suffice it to say that this is how we gain clarity around what constitutes the deal, who the “players” are, and who owns what tasks.
The amount of time it takes to Understand the Landscape differs from deal to deal. The more complex the deal, the more time required. But preparation is imperative for even the smallest of deals. It simply helps everyone get a clear view on the expected outcomes, the context of the situation, and the people and responsibilities. This helps everyone make more informed decisions in achieving the right outcomes.
So on to the deal we started with here today (the deal that was going to get skipped), things got interesting quickly. After a couple of hours of work and a single phone call, we uncovered that they have been overpaying for 4 years…to the tune of $75k, which the business can now go recover from the vendor.
So, in this situation, ROI is high. As is often the case, and as we have discussed in previous blog posts, vendor renewals are often overlooked. but we all managed to seize the moment and win.
In this blog we will cover 3 things to consider when making a decision on which renewals to pick or, said another way, what criteria you use to determine what deals are “worthy” of a closer look:
1) Look Small. When evaluating what to look into, a common misconception is to look only at large dollar deals. The issue with this is that there may be many smaller deals that, when added together, can add up in ROI that exceeds a single large deal.
2) Seek Consolidation. Look at your AP reports and see if there are opportunities for consolidation. While that was not the issue with the scenario mentioned above, the idea of not looking into something for a perceived reason, did not play out as expected. Do not judge a book by its cover and maybe another way to think about it is to inspect what you expect.
When establishing the action list…look for large dollar spending with vendors that provide similar or same services. Is it possible to consolidate the services under fewer vendors, which offers them an opportunity for customer growth, and offers you an opportunity to enjoy volume discounts?
Over time, and when services are procured in a decentralized manner, it is not uncommon for organizations to have many vendors doing the same thing. Without a look, this may be another missed opportunity.
3) Raise the Bar. Work to categorize opportunities also by considering the “top tier” vendors for your firm. If you can reward a vendor for being key/critical, they may be more open to the idea of improved pricing, enhanced terms and conditions, or additional benefits not previously contemplated.
When your organization simply purchases what they need, when they need it, and does not look at how things may be interconnected, there is very likely an opportunity lost.
Again, it is worth repeating; If the business ‘whys’ and the technical evaluation lead you and your team to conclude a renewal is worth the pursuit, you will want to activate best practices your renewal activities. In the end, a missed opportunity within a renewal may prove costly. But by not overlooking it, you just found another way to generate savings and value for your businesses.
Curious how you can achieve a lower TCO (Total Cost of Ownership) with an important renewal? Click here.