Bid Periodically

Too many times, managers reorder products or renew service agreements without spending time to evaluate whether the supplier is charging a competitive rate. The excuse offered is always something like "Why rock the boat? I have always been satisfied with the vendor's product or service."

Maintaining continuity of product or service is admirable and usually an attainable goal. However, a conscientious manager keeps the vendor "on his toes." Often vendors will charge their best customers list prices because the user never balks and is unaware that others are paying less for the same product or service.

Periodically, the astute manager will solicit bids from competing vendors and will ask current vendors to meet any lower quotes. It is not uncommon for the current vendor to reduce the price to meet a legitimate quote and keep a valued client.

For example, in my early years as a CFO of a promotional marketing company, the Company's air conditioning maintenance contract was up for renewal. The landlord's suggested vendor offered to continue his services at $3,000 per year. By making a few telephone calls, three bids in the $1,800 per year range were received. Almost immediately after being informed of the discrepancy, the current air-conditioning company not only met the other offers but agreed to guarantee that rate for at least the next three years.

When the incumbent supplier will not meet the lower prices, do not be afraid to switch vendors. Besides reducing costs, you may be pleasantly surprised by the quality of the new supplier. Especially in this economic environment, a financial manager must be prepared to spend a good deal of time soliciting competitive bids and negotiating in a tough but fair manner with all current suppliers.