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Supply Chain Software; Take Advantage of Flexible Capabilities and Pricing
The last five years have seen huge advances in supply chain software; there have also been significant changes in the way software is sold. Now companies can purchase only the supply chain software capabilities they need and pay only for what they use. In order to get the software that fits their supply chain needs with the most flexible and affordable pricing possible, companies should prepare carefully for negotiations and consider multiple products and product sources.
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WHAT'S NEW IN SUPPLY CHAIN software in the last five or so years? Just about everything. Advances include functional capabilities such as multi-echelon inventory optimization, collaboration and RFID. There have also been significant changes in the way software is sold. The growth in outsourcing capabilities such as Application Service Providers (ASPs) has allowed much more flexibility and affordability in the supply chain software space. While ASPs aren't really new, the options and ways in which to use them are continually being refined based upon the expressed needs of potential users.
Traditional - License Fee
The traditional method of pricing supply chain software was a license fee. These fees are usually significant and as a result the buyer needed to have significant proof of ROI to justify both the license fee and the high implementation costs. Because of this history, software companies have been looking for ways to make their pricing more flexible and their solutions easier to implement. The traditional big supply chain software players have invested a great deal of time in becoming more flexible, while the ASPs are able to reinvent themselves more easily.
One way the established, traditional supply chain software providers are attempting to compete against the newer, more flexible supply chain software companies is to team up with large integration services firms to offer different levels of functionality at varying price levels.
New Pricing Options
The ASP model has a structural edge because it focuses on ease of solution implementation, primarily built as an offering via the internet. The SCM solution provider and their ASP partner offer unique pricing options as compared to the traditional methods. With this ASP model, you can pay to gain access to software either by the transaction, by a time period (e.g., month), by number of transactions or on an unlimited basis (similar to the license fee). In addition, you can choose which pieces of functionality you want to use. This flexibility can be a boon to many companies who are unsure of how best to utilize or deploy software solutions. They can implement a piece of functionality and pay by the transaction to see how it works without a significant investment.
How easy can it get? Some software can be purchased via a credit card over the internet and you can start using it immediately.
Negotiating for Flexibility
What is open to negotiation with the software provider? Just about everything. We fully recognize that many software providers have predetermined pricing and functionality offerings; however, with some research, you can get just about whatever type of pricing and functionality combination you need (within reason, of course).
Many companies think they are getting a good deal based solely on the initial price of a software license only to learn that the flexibility of the contract is restrictive and expensive. To avoid these pitfalls, preparation for negotiations with the vendor is essential and should be done through a team strategy that includes representatives from purchasing, legal, information technology, finance and, most importantly, the end-user organization. When the vendor is limited to a single point of contact with the company, the vendor can have problems navigating through this process, representatives from other departments should be also involved this process. Each team member should know the vendor's pricing model and product prices before vendor negotiations and allocate sufficient time for the negotiation process.
The first key element of the contract is a list of critical terms and conditions defined through results-based metrics (e.g., the successful deployment of a pilot application or proof of concept). Secondly, all the key issues in the RFP should be included and resolved in the contract before signing. Finally, the team should respond in writing to any changes in contract terms and should not authorize any vendor paperwork or commitments until the final contract signing.
Negotiation is best done with a solid understanding of the vendor's market position, reputation and current market conditions (e.g., the team should be knowledgeable about the vendor's pricing structure and levels of discount). If the vendor is known to discount heavily within a certain market or against a low-cost competitor, there may be more opportunities to gain concessions. The negotiating team should directly confront the vendor with any deficiencies in their product capabilities and services; they should work to either resolve them or gain financial benefits for them. The company should maintain the flexibility and leverage of considering multiple products or product sources as a contingency.
Key Questions to Answer before Negotiations
Make sure you have the following answered before you enter into negotiations for new software:
Using this checklist to make a selection from the many new products and flexible pricing options currently available, any company should be able to find an economical and well-fitting solution to its supply chain software needs.