Kudos to those of you who have established strategic partnerships with key vendors and suppliers. You feel a sense of trust and comfort that they have your best interest at heart. You’ve probably worked with them for several years. You thankfully haven’t had to deal with the hassle of an RFP because they are meeting your needs, both price and service-wise. Ah, the life.
But could these vendors be giving you a false sense of security? They may be saying that you’re getting the best price in the market, but statistically, is that true? How can you be assured you’re “buying well?”
What is market testing?
Market testing is a tactic that savvy districts are practicing to ensure that even their longtime vendors are indeed providing the best bang for the buck. And, honestly, more districts need to get in this loop. Market testing by definition is “the invitation of competitive offers from external service providers to validate the competitiveness of the incumbent provider. Services are obliged to be market-tested in order to demonstrate that value for money is being received.” (taken from the Supply Chain Glossary, courtesy of Chartered Institute of Procurement and Supply)
You may be thinking, “We don’t have the staff to do this.” Or, “We trust that our vendors are doing their best for us.” This is a common response. But, if you are committed to being the best stewards of your district’s finances and minimizing expenses to provide more for teachers and kids in the classroom, market testing is a non-negotiable.
What value does market testing bring?
Market testing gives you real data points that can help justify why or why not a certain vendor is or is not being used. It shows a due diligence when superintendents and board members question your spend. In addition, market testing:
- helps establish a threshold for change. If you discover more favorable pricing and service, it will be an easier “sell” to staff for initiating RFPs.
- makes you aware of trends, providing data to make an informed decision to either extend or “shop-out” a current contract.
- justifies keeping your current vendor partnerships.
How do we conduct market testing?
- The first step is to determine your goal. Your goal may be to make better business decisions and improve your competitive position with supply chains. Make sure to have all stakeholders on board whatever your goal may be.
- Research the market and pricing structure for your product or service.
- Conduct an in-depth supplier analysis by identifying the primary players in your market and research them thoroughly.
- Compile your research and present recommendations to key stakeholders.
How often should you market-test and who should do it? Market testing should be done according to the length of a particular contract. If you are in a one-or two-year vendor contract, conduct market testing yearly. Vendor relationships that are month-to-month can be market-tested as often as time allows, minimally twice per year. It is optimal to have one staff member manage the process. Or, an outside strategic partner may be a solution that maximizes efficiency. In any case, give your district the gift of market testing to optimize your assets.
Thomas Insights, North America’s largest and most active network of B2B buyers and industrial/commercial suppliers, contributed to this article.