Is it time to go shopping?
This question causes guilt and anxiety for many companies when they think about their vendors: Is it time to get a few bids from competitors, or is it OK to keep using the same company?
People feel guilty because they think they SHOULD put more effort toward confirming they have the right solution. They feel anxiety about this because they think they might be overpaying.
Four Questions, No More Guilt
Guilt and anxiety are seldom productive. So let’s take action instead. Here are four questions that will guide you to the answer about whether you need to go to the marketplace for that vendor or project. For each one you need to assign an answer on a five point scale.
Question One: How dissatisfied are you with the vendor or value you are getting now?
If the service is causing you time, worry, or hard dollars, then you have a problem you need to fix.
Assign a number 1 to 5, where 1 is completely satisfied and 5 highly dissatisfied.
Question Two: Does this represent a large expense for your budget?
If this is a ten-dollar purchase, saving 40% is still pocket change. On the other hand, if it’s a $600K contract, a 3% improvement in price could be worth some time.
Assign a number 1 to 5, where 1 is a small expense, and 5 is a large expense.
(If you’re stuck here, you can correlate 1 to 1% of your annual budget, meaning 5 would be 5% of your budget which in most cases would represent a large expense.)
Question Three: How much competition does the current supplier have?
How many competitive vendors are in the marketplace: many, or just a few?
Again, a number of 1 to 5, 1 being low or no competition, 5 being highly competitive.
(You need to keep it real here – this number is almost always underestimated in my experience. Everybody has competition except the government.)
Question Four: Would it be relatively easy is it to switch vendors?
Time, cost, and risk all make it harder to switch. This is question breaks both ways: people often underestimate switching cost, and in other cases people overestimate it. So try to be as specific as possible when you think aobut it.
A 1 here means difficult to switch; 5 means easy, quick, & low-risk.
Adding it Up
Here’s an answer key:
- 8 or lower: Sleep Easy
- 9-11: On the Bubble
- 12-15: Plan to shop around this quarter
- 16 or higher: Get Thee to an RFP, ASAP!
Obviously this is not a perfect system and cannot guarantee the right answer. If you really want the right answer, give me a call at 703.944.9676. But having an imperfect framework is extremely useful if it frees you from guilt, anxiety, and procrastination.
The Missing Question?
The question that isn’t there is one that is often used as the primary rationale: the PRICE. Unless you have multiple written bids from competitors within the last 12 months, you don’t know what a competitive price is. You’re just guessing.
Is this helpful? Let me know, and if you’re on the bubble with a vendor I’d be happy to talk about it.