Tupperware CTO locks in fresh spending plan

By Linda Tucci, Senior News Writer 30 Jan 2008 | SearchCIO.com

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Bob Wagner

"Our goal is to stay flat or to reduce the budget, and of course, that is not easy because you may face increases in maintenance fees or salary increases, so you have to find places to offset those costs," Wagner said.

His new best cost cutter? NPI Inc., an Atlanta-based spend management firm that serves as chief negotiator with Tupperware's top vendors, which include Oracle Corp., Hewlett-Packard Co., Microsoft and AT&T.

In the past, Wagner and his team took their best shot with "valued partners" and were generally pleased with the result. But the process was time consuming and took away from IT's primary responsibility.

"When our people come in to do their job, we need to have everything functioning for them," Wagner said. No small feat for a growing company based in hurricane-prone Florida, with a U.S. sales force that depends on Web-based systems. In addition, Tupperware often picks up employees in tough economic times. Indeed, the Orlando-based company is expecting a strong 2008, according to its CEO.

"What NPI brings to the table is the experience of not just doing one of these types of negotiations, but many, many," Wagner said. "They have the experience to shortcut some of the process, talk to the correct people to get the right answers the first time around and to see how far, for example, an Oracle will go."

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Wagner would not disclose how much money Tupperware saved by using NPI, except to say it "exceeded expectations." NPI takes a percentage of the savings reaped as its fee, and allows Tupperware to walk away from a negotiated deal with no penalty (see related box).

And the savings keep coming. In some cases where Wagner's team has continued to take that first crack with vendors, NPI was able to come back with "six figures' worth of savings." In other deals, NPI decides if deals are indeed fair market value. That's fine with Wagner, who stresses that the lowest price is not always the acceptable bottom line. In fact, Wagner has been presented opportunities to switch vendors and opted not to because the quality of the service or product did not serve the business.

That said, Wagner added, "This does beg the question a little bit how these vendors could say they cut the best deal possible with us, and then a spend management firm is able to drive that deal even further."

Insider perspective

Jon Winsett, managing partner at NPI, said the CIOs he meets "are a pretty conscientious bunch" when it comes to spending. But in buying and maintaining the software and IT systems critical to running the business, even the most savvy CIOs come to the table with a huge disadvantage, he said.

NPI's aim is to get you fair market price, but that's not easy in a market where pricing is so veiled. The firm's big selling point is simple, Winsett said: For every contract a CIO negotiates, he and his colleagues -- most of whom boast job experience at large vendors -- see 50 similar agreements with the same vendor every quarter. "We bring the insiders' perspective."

Shop carefully Tupperware chief technology officer Bob Wagner has tried other spend management firms, and has found them wanting -- too inflexible, too hard to work with and wanting too big a percentage of multiyear savings. Here are some of his questions to ask before choosing a spend management firm: What percentage does the spend management firm want? Is it for one year or multiple years? "As years go by, it gets tougher to squeeze more out of the same vendor and still maintain good relations. Aim for keeping the spend management percentage of the savings the same," Wagner said. Who has the last say? This is tricky because it means the spend management firm won't get paid if you don't do the deal. "Even if NPI structures a deal that looks like it will save a lot of money, and we don't want to do it, then that's it," Wagner said.

"Vendors keep their pricing close to the vest. They don't like visibility into pricing across clients, and this leads to great disparity between what company B is paying versus company A," Winsett said. "The result is that companies are overspending by millions of dollars on tech purchases, and it is not necessarily their fault."

Moreover, the long-term life span of certain software systems means companies need to look to limit liability, not just for 12 months but for as many as a dozen years.

As fears of a recession mount and CEOs grow concerned about revenue growth during the next 12 months, even the most frugal IT shops are feeling the heat. "Today, I'm hearing a different tone when I talk to CIOs," Winsett said. "Their executive boards are saying, 'I am serious guys, you gotta cut costs.'

"We've just been called in to meet with a CIO for a large financial institution in the Midwest who wants to talk about the recession," Winsett said in a phone interview last week. "There's no doubt recessionary fears are swirling in their heads."

Even the most adept IT organizations --companies that know how to word a request for proposal (RFP) to elicit competitive bids -- are behind the eight ball because "vendors spent their lives trying to charge the maximum amount. They know where all their competitors are going to stack up and bid accordingly, depending on how much they want the business," Winsett said.

For example, accepted knowledge is that IBM and EMC will come down 35% off an initial RFP, Winsett said. "So companies know they will be in the running at a 35% discount, but in reality, these big guns will come down to 55%. You've got to know the steps to get there."

Vendors are trained to listen as the purchasing process moves from step to step. One common mistake IT professionals make is to show their hand before negotiations begin.

Too much information

IT veteran-turned-negotiations consultant Randy Roth said the biggest disadvantage IT professionals are up against in vendor negotiations is time. Negotiations can drag on for months.

"A vice president or a CIO that is giving 110% to their day job is not going to be able to take care of all the issues that will come up," said Roth, co-owner of Corporate Contracts LLC, a consulting and contract negotiation firm in Urbandale, Iowa, and co-chair of the Society for Information Management's IT Procurement Working Group. "Companies are leaving money on the table if they use management negotiate these contracts."

Roth said he has seen customers forfeit their leverage in numerous ways, including on the golf course, over lunch at a nice restaurant or by the unwitting saboteur. He recommends that project teams designate a single point of contact for the vendor, and instruct all others to act as silent partners. Vendors are adept at "divide and conquer," Roth said. By cozying up to each of the members of a project team, the vendor ends up "with all the information that the team might have been available for negotiations later on," he said.

IT departments can also be guilty of unfair play, according to both Roth and Winsett, although that usually stems more from ignorance than guile. Untrained project teams, not schooled in how to run a fair process, may bleed information that gives one vendor an upper hand over a competitor. Companies that repeatedly use other vendors just to knock down the price of an incumbent can quickly get a bad rep in the business, jeopardizing their chances of fair deals when they really need to change vendors.

Tags: Contract negotiations and legal issues,  IT spending and budgeting,  Vendor selection and management,  VIEW ALL TAGS

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