It’s an all-too-familiar story: Naïve but well-intentioned people get taken advantage of by an OEM that over-engineers and/or over-charges for equipment during a Request for Proposal (RFP).
Remember the cautionary tale about the West Virginia officials accused of wasting $5 million of federal money on enterprise-class Cisco routers that weren’t needed? While that story is 4 years old now, the significance isn’t lost because it remains top of mind when IT staffers kibitz about how the RFP process can go wrong—awfully wrong.
In all, $24 million was spent via a not-very-open bidding process under which few groups were consulted. Despite repeated retellings, occurrences like this continue to happen. The fact remains that in too many RFPs, the cards are stacked in the OEM’s favor. To be dealt a fair hand, follow the five simple steps below. The result will put you on the path to getting the best prices on your next RFP with the fewest headaches:
1. Welcome real competition
Invite multiple equipment sources to your selection process. This is hardly rocket science, but you really need to be open to alternatives in order to realize significant savings. If all you want is Cisco, then solicit multiple VARs, but don’t expect much discounting because the winning VAR will be the one willing to work off the thinnest margins.
The way to a better deal is when the OEM believes there is real competition. The biggest mistake companies make is eliminating—in the eyes of the OEM—all potential competitors. So, invite Arista, Brocade, Juniper and Cisco to your RFP. Even if you plan to go with Cisco, you’ll see discounts of up to 75 percent based on the threat of viable competition.
2. Focus on solutions—not just products
Ask the RFP respondents to provide detailed solutions—rather than a list of devices. Keep your descriptions generalized, which puts the onus on VARs or integrators to do some design work. For instance, explain you need to “connect 900 servers via 10 Gb” and see what answers you receive. Issuing an open RFP is the best way to solicit different solutions at competitive prices.
3. Consider third parties
While an RFP with multiple vendors should ensure 70 to 75 percent off list price, adding third-party products and solutions can yield savings of up to 90 percent on certain types of hardware, such as optics and memory. Why? These commodities are the most heavily marked-up products from almost every manufacturer, so be careful to avoid over-spending.
Of course, the size of the discount often depends on the size of the opportunity. Let’s say you are seeking $1 million of equipment at list price. In some cases, customers end up paying half that while others close the deal for $200,000 because they took advantage of every competitive tool, including open RFPs, third-party equipment and even bundled maintenance.
4. Go for the bundle
To get the best deal on maintenance and support, bundle it with hardware in the RFP and ask for a single bid. This is an awesome strategy for saving money because you can delineate what you need to maintain with the OEM vs. what you can maintain yourself or offload to a third-party service provider.
With alternative maintenance, you can expect savings of 50 to 90 percent. The key is understanding what needs to be on OEM maintenance and where you can exercise more flexible, cost-saving options. For instance, a firewall should immediately go on OEM maintenance for the full expectancy of its use. But there are hosts of devices where OEM maintenance is complete overkill.
Understand the difference, and follow some rules of thumb: Maintenance typically should be 10 to 15 percent of the list price of the hardware. So, if you got 75 percent off, you could spend $250,000 on hardware and $125,000 on maintenance because it’s not based off what you paid, but what it lists for. Asking for a multi-year deal on maintenance can eliminate some sticker shock.
5. Keep an open mind
Remember, the entire RFP process is about asking for advice—not being told what to do. Keep an open mind, seek participation from sources that are not tied to just one OEM, and steer clear of proprietary solutions to avoid vendor lock-in. You will most likely be surprised at what you can learn during due diligence, which might lead you down a different path to a better deal.
That’s what happened a few years ago when California State University set out to refresh its Cisco network. It ended up ousting Cisco for Alcatel-Lucent and saved $100 million in the process. So, it’s no surprise that the story generated follow-up and a lot of comments on the Network World site. While it’s always hard to resist viewing a train wreck, of more importance is learning something from what you saw.