What do you do if a vendor's pricing is too high? (2024)

When the price quoted is significantly higher than the other bids, it's usually a sign of over delivering on the project requirements. It becomes imperative that we break it down into line items and efficiency metrics and only account for the costs associated with what we want. Over engineering for quality and reliability takes up the pricing for any RFQ by many a notch. Only once you have the costing for the actual requirement, should you compare it with competitor bids and then make a decision. If even after this, the cost is significantly different, it could be a premium that the vendor is levying for the reputation and good standing in the market - then it becomes our call if we proceed with the quote or not.

Evaluate Alternatives: Assess other vendors for competitive pricing and quality.Negotiate: Negotiate pricing terms and conditions.Scope: Refine project scope to align with budget constraints.Request Discounts: Inquire about discounts for long-term commitments.Seek Value-Adds: Negotiate for additional services or features to justify costsConsider Trade-Offs: Balance cost with quality and vendor reputationEscalate if Necessary: Involve higher management if negotiations stall.Explore In-House Solutions: Assess feasibility of developing solutions internally.Benchmarking: Compare vendor pricing against industry standards for validation.Vendor Relationship Management: Maintain transparency and communication to build a strong partnership.

It's important to get into an honest conversation with the vendor regarding the offering. Only then will we be able to understand the scope of supply and the cost attributed to each of the line items. This would also help you push back on the occasions that you feel that the price has been over quoted. Care must be taken to not be offensive or aggressive, but communicate professionally on why you feel that the price doesn't justify the scope of supply. This might bring the vendor to relook at the submission and optimise costs wherever possible.

If a vendor's price is extremely expensive, start by comparing the costs and qualities of other sellers. Present the result to the present vendor during negotiations and push for a more affordable price. Investigate ways to cut expenses, such as bulk discounts or long-term agreements. Think about switching to a more affordable source if the prices don't meet your expectations.

If pricing is deemed too high, I would first assess the reasons behind the elevated costs, considering factors such as quality, value-added services, and market competitiveness. Prior to this, I will explore potential avenues for cost reduction or value enhancement, such as volume discounts, long-term contracts, or revisiting service agreements. I will also conduct a thorough market analysis to identify alternative vendors offering comparable products or services at more competitive prices. In this process, my goal will always be to secure the best possible pricing terms without sacrificing the quality or integrity.

The RFQ would have received multiple proposals from different vendors. As a result you can rank them in terms of pricing as L1, L2 and so on, with L1 being the lowest price. Now we can add other metrics like delivery SLA, long term vision and quality attributes as an additional line item to the quoted price. This way we'll be able to evaluate the final package submission. Speaking to multiple vendors also gives us the idea of the fair price.

In case the price is non-negotiable, you can look for alternative options like adding in an Annual Maintenance Contract for free or having a dedicated service professional available 24*7 and many such things. Apart from this, you can look at negotiating the payment terms in your favor.

The obvious thing is to talk to vendor and understand its cost structure. Also, explore alternatives (BATNA).If the price point is beyond budget and there are not too many vendor options, then next best thing is to negotiate on payment terms. A favorable payment terms means you spread your expenses and gain by cost of money. Another strategy could be to phase out the project, go for absolutely necessary in 1st go and you get time to explore alternatives.