The “Champion vs. Challenger” strategy has been around for a long time. It’s a tried and true strategy. Some people may refer to it as a best practice in vendor management.
The strategy is quite simple. It starts with a very common scenario: you have a vendor under contract. All is well and there doesn’t seem to be a problem...
The line of business using the vendor doesn’t see any reason to make a change. The internal audit team has never had an issue with the vendor or the way in which the vendor is integrated into the organization. The vendor management team is collecting all of the required due diligence with zero hassle and in a timely manner. So far no one is seeing anything that vaguely resembles a problem.
But that IS the problem! The terms and conditions of nearly every contract you have with any major vendor your organization utilizes will allow the vendor to increase the price they charge for the products and/or services provided. And, it’s a natural course of business for costs to increase over time.
When you contract with a vendor, there’s often a substantial amount of money on the table and the agreed upon price for a product/service that you initially contracted for will increase over time. To give you an idea, the Consumer Price Index (CPI) is a measure of the average change over time in prices paid for a product or service. Over the last 20 years, the CPI rose 2.2% annually.
You must compare vendors and have them “compete” on a level playing field to determine the best quality and service delivery for the expense you’re paying.
Champion vs. Challenger for Vendor Management Provides These 7 Benefits
Using the champion vs. challenger strategy for vendor management comes with many benefits to your organization. Here is a breakdown of the top seven ways this can help your organization:
- An opportunity to present other options before a price increase: If you’re not watching carefully, the vendor may automatically renew the contract with a CPI increase. However, if you’re watching carefully, and make your vendor aware of the other options in the market and that you want an opportunity to negotiate a price increase, then your vendor should be able to give you a better deal – especially when you present a picture that outlines to your vendor the solutions available in the market space that are far more economically beneficial than just letting their vendor contract roll over at a higher price.
- A competitive advantage: Have you ever had a vendor advertise a great bargain but it’s only available for “new” customers? How did that make you feel as an existing customer? If your vendor knows that they’re going to have to compete for your business at the end of every contract period then you have the ability to bake in a “competitive atmosphere” that’ll cause your vendors to constantly be looking to give you the best deal possible to keep your business.
- Better pricing: The champion vs. challenger strategy will also give the vendors you’re not currently working with an opportunity to give your organization an even better deal to win your business. Vendors will give your organization better pricing initially and they’ll keep giving you the best pricing if they know your organization constantly has its finger on the pulse of the marketplace for their product or service.
- Vendor respect: If you’re always reviewing the marketplace and the options your organization has, you’ll know if your vendors really are giving you their best price for the products and/or services your organization requires. It’ll also cause your vendors to give your organization the respect it deserves.
- Improved lines of business satisfaction: Your lines of business will have a higher level of satisfaction if they know they’re doing the absolute best they can for the organization and are getting the products and services they need to do their job at the best price possible.
- You’ll have answers for senior management: Your senior management team is always asking you if that’s the best deal possible, especially for big ticket items. Once the champion vs. challenger attitude becomes pervasive in your organization, senior management will know they’re getting the best deal possible and they can focus on other aspects of the business.
- It’ll help with running a sound business: This strategy is one of the foundational elements of running any business. It ensures that you’re not just doing business with a vendor because it’s easy or it’s what has always been done. You and your organization will both know you’re doing business with the vendors in your vendor portfolio for a sound business reason.
How Frequently Should Vendors Be Evaluated?
You may be wondering how often you should be performing the champion vs. challenger strategy in vendor management.
First, I’ll lead into this with I like to have a five-year rolling calendar that shows when every critical or high-risk vendor contract is expiring. From that calendar, I’ll schedule product/service and vendor reviews for the current year for every vendor whose contract is due to expire the next year.
By doing this, you’re doing a couple of things for the organization that are very helpful:
- Giving advanced insight. It gives your organization a good view into what is expiring on the vendor management horizon.
- Ample time to prep. It also allows the lines of business to prep, too. We find that lines of business get entrenched and start to exhibit the, “If it’s not broke, don’t fix it!” mentality which may not be in the best interests of your organization. This approach will help avoid that.
Secondly, as a best practice, you should be challenging your technical vendors every two years. I know that many tend to think in three-year increments with technology. However, remember, there are CFOs out there that still want to depreciate the cost of a technology asset over five or seven years. Three is certainly better than the five or seven years your CFO may want to depreciate your asset, but you should also be challenging all your vendors during the last year of their contract. It’s a sound business practice.
There are exceptions to the two-year rule for technology. Your core processor should be reviewed and challenged every three years no matter what. This exception to the rule is solely due to the chain of pain your organization would have to go through if you changed your core processor frequently. It’s a big deal to undergo a core processing change.
In my career, I’ve brought in vendors that led my organization to believe they were fully capable of doing everything we needed them to do, only to find out they had a key weakness that couldn’t be overlooked. By always having two vendors vying for your business, you have a ready alternative.
Have a thorough process in place for ongoing monitoring of your vendors. Download the infographic.