From a Prominent Member of the Vendor Community
Just about the first thing I did in the office this year was read your December editorial, “It’s a Great Time to Be an End-User!” From my position as a member of the supplier side, I certainly agree that it is getting to be a good time in our industry.
I think that the approach you advocate to end-users in your column may be a bit off; however. You suggest, “Go bid for it, and watch the price fall.” I’d like to suggest that this is actually a very inefficient way for end users to extract the maximum benefit from a vendor. I would posit that forming a close, long-term relationship is a better way to drive cost (note: use of cost vs. price) out of the system. We have several customers that source us exclusively and save by:
Lowering maintenance training costs
Lowering spares storage costs – we stock spares for them at their site
Lowering bid evaluation costs
Access to new products earlier (beta tests) and more input on product direction
Lowering engineering interface costs
Lowering engineering training costs
In one case that I know of, we provide an on-site employee to make sure our exclusive relationship works well for the customer. He acts as an ombudsman for the customer to make sure company-customer interfaces remain smooth, that problems are resolved quickly, and orders expedited. Since his job is solely to make sure this happens, he is highly motivated to see that the customer remains happy.
We value these relationships because we share in some of these cost reductions (bid preparation and dog-and-pony show eliminated) and they give us some ability to project business better. If you think this is a situation where we would use predatory pricing to take advantage of the customer loyalty, you would be wrong. These customers get some of our very best prices. In some cases, they have guaranteed visibility to our pricing structure with fixed pre-negotiated discounts. Those discounts can also increase based on sales volumes generated by the relationship.
You also suggest that we use services to extract large fees from our customers. While it is true that services are a large and growing part of our business, it is because customers are finding it overall a lower cost proposition to outsource these to us. We can establish efficiencies due to critical mass, investment in engineering tools, and participation across many projects and customers to keep our staffs busy and highly productive. Rather than using this to “extract money from you every month” I think we are helping them save money and help them keep engineering staffing levels constant and secure.
While there are certainly examples to point to that would bear out the correctness of your editorial position – all those bad other vendors – I’m not sure that your proposal results in the lowest cost of goods and services to your readers and our end-users in all cases.
I’d be happy to work with you to show, what I believe, is a very different picture of successful commercial engagement with vendors than the model you suggest. I could put you or your editors in touch with our customers who participate in these arrangements or work myself with one or more of them to develop an article touting their approach to minimize overall automation costs.
All aforesaid herewith notwithstanding, I look forward to a new year of working with you and Control magazine.
Happy New Year!
P.S. If your article was intended to be provocative (No. You wouldn’t do that would you) and to elicit this type of response – you were, of course, successful.