Irritating Suppliers - on the cheap
30/08/09 07:48 Filed in: Service Engineering | Procurement
A recent article in CIO magazine proposed a means of benchmarking suppliers on the cheap. Don't bother with all that expensive data gathering and comparator idenfication, just get the benchmarker to give you a price for the service and start your negotiations from there.
Great, quicker process and undoubtedly a nice low price point from which to start beating up on the supplier. Even better no need to 'look under the hood' and check that the benchmarker has used the correct data. But will it work?
This approach could save money and time in all walks of life - don't bother asking a builder or a plumber for a quote, just get your Independent Financial Adviser to give you one, alongside the latest investment advice.
Optimism bias aside, one of the fundamentals of pricing a service is that the winning provider has to live by that price. Where are the consequences of incorrect pricing for the benchmarker’s here? They neither have to deliver the service for this price, nor find subcontractors who would be willing to do so. So beyond the perfection of a spreadsheet delivery of service, they have no exposure. A conventional bidding process for service provision forces providers to face risk. If they cannot make the quality of delivery for the price they offered then they face both reputational and potential economic consequences.
How can one construct a similar framework for the benchmarkers? How do they pay for wasted time in meetings between the provider and the customer as their given target price impacts the reality on the ground? Do they face a charge for the time taken in negotiation and data gathering to forge the 'new' service provision agreement?
While the price of a phantom bid price might well be cheaper than a full benchmarking process, this is a fraction of the total cost of the full re-negotiation of a service delivery. The real costs of this approach are not just the economic impact, but the consequences to the relationship between service supplier and customer.
Chris Tofts (chris.tofts@concinnitas.co.uk)
Great, quicker process and undoubtedly a nice low price point from which to start beating up on the supplier. Even better no need to 'look under the hood' and check that the benchmarker has used the correct data. But will it work?
This approach could save money and time in all walks of life - don't bother asking a builder or a plumber for a quote, just get your Independent Financial Adviser to give you one, alongside the latest investment advice.
Optimism bias aside, one of the fundamentals of pricing a service is that the winning provider has to live by that price. Where are the consequences of incorrect pricing for the benchmarker’s here? They neither have to deliver the service for this price, nor find subcontractors who would be willing to do so. So beyond the perfection of a spreadsheet delivery of service, they have no exposure. A conventional bidding process for service provision forces providers to face risk. If they cannot make the quality of delivery for the price they offered then they face both reputational and potential economic consequences.
How can one construct a similar framework for the benchmarkers? How do they pay for wasted time in meetings between the provider and the customer as their given target price impacts the reality on the ground? Do they face a charge for the time taken in negotiation and data gathering to forge the 'new' service provision agreement?
While the price of a phantom bid price might well be cheaper than a full benchmarking process, this is a fraction of the total cost of the full re-negotiation of a service delivery. The real costs of this approach are not just the economic impact, but the consequences to the relationship between service supplier and customer.
Chris Tofts (chris.tofts@concinnitas.co.uk)