Avoid Pricing Pitfalls When Selecting a Logistics IT Solution
Q: One of the common gripes voiced by organizations implementing logistics IT solutions is that the solution ends up costing more than expected. Why does this seem to happen so frequently?
A: The roots of this complaint can be traced back to improperly managed expectations during the sales process. Pricing between providers competing for the contract can vary widely and features/functionality included in one provider’s quote aren’t necessarily included in the competing quote. Take, for example, what is included in a TMS provider’s implementation fee. What Provider A includes may be far more comprehensive than Provider B delivers by way of service. Yet buyers generally assume the quoted prices include the commensurate levels of effort and value from both providers.
Q: What are some of the differences between offerings that can result in such discrepancies in cost?
A: There are many that seem intuitive but frequently cause surprise. The provider offering the lower implementation fee and monthly subscription fee likely keeps the quote lower by assuming client resources will be responsible for completing tasks like initial data loading (entering existing carrier rates and other data into the TMS for example), carrier onboarding, IT support, and even user training. Whereas, the provider offering a somewhat higher price quote may perform all these functions as part of their service at the quoted price.
The lower cost solution provider typically charges extra to help customers complete these tasks when inevitable challenges and issues arise and the customer is unable to execute autonomously. At the end of the year, it’s not uncommon for the solution with the more attractive sticker price to end up costing more than the competing solution which includes these services as part of its price quote.
Q: How can customers arrive at an equitable comparison when weighing solutions and costs side-by-side?
A: Get suppliers on record early regarding service levels. Just like you’d require detailed SLAs for technical aspects, ask prospective providers for a line-item breakdown of what’s included in their quote and what isn’t. Three things you must receive from each provider are:
- Detailed listings of features and functionality
- List of services included during and after implementation (e.g., data loading, training/support, etc.)
- A detailed Statement of Work (SOW) including definitions of standard roles expected to be provided by the provider and the client (e.g. RACI matrix)
If the prospective provider cannot deliver these items, their pricing should be viewed as a risk because there is no expectation of what is included in the price and what will incur additional charges once it is too late to select a different solution.