5 Common Hidden Costs (When the TEM Vendor’s Price Seems Too Good to Be True)
Written by: Scott Davis, VP of Marketing
Finding the “best value” can often be synonymous with “getting the most bang for your buck.” This is a fairly simple exercise in the consumer market when shopping for tools, electronics or any type of identical items, your goal is typically to find the best deal on that item. For example, when shopping for an XBOX One, I will shop multiple stores to find the best price. The XBOX doesn’t change, but the price or the deals one can find on the hardware can vary from store to store. But what about with your TEM vendor?
The enterprise software market is a bit trickier. Software solutions between vendors are not exactly the same, and when you add services into the equation, the combination makes for a world ripe with hidden fees and capped service levels – all of which are cloaked in the fine print of an already difficult to understand contract.
Unfortunately, this is common in the TEM industry. You will likely find large variation between quotes, for what seems like the exact same service. However, all too often, we hear from organizations who feel like they’ve been tricked by the allure of the low-cost TEM vendor.
Having been in this industry for over thirty years, we’ve seen it all. To get a better grasp on what costs may be hidden in a TEM proposal, here are some specific questions to ask TEM vendors about the software and services being quoted.
5 most common “hidden costs” and the questions to ask:
1. Vendor Vs. Client Processes
- The single biggest hidden costs, and the most common source of dissatisfaction with a vendor’s service, is the lack of clarity articulated in the roles and responsibilities of both vendor and the client. The low-cost TEM vendor will often have a much lower service capability. As such, while it’s not apparent when you sign an initial contract, enterprises very quickly realize that they need to have people on-staff (and payroll) to continue managing many of the services that they thought they just outsourced to a TEM vendor.
- Question to ask: Ask your TEM vendor to provide a RACI document, which outlines who does what on each team (yours and theirs). This should help you quickly determine if there is a disconnect between what is being promised, versus what is sure to be a reality once you go live.
2. Additional Reporting / Analytics Fees
- The TEM industry is driven by reporting. No matter which solution you’re using, all solutions have standard canned reports. While reputable vendors include reporting in the regular quoted service fees, the low-cost TEM vendor uses reporting as a place to hide costs. They will often have additional fees for delivering standard reports. If you need a simple ad-hoc report or a larger complex report, expect to pay larger prices.
- Questions to ask: Be sure to ask all vendors you interview if they charge for standard reports, ad-hoc reports or quarterly business review reports. Are these reports included in the quoted price or is there an additional fee per report? Are there limits on the number of reports they will create as part of their initial quote? If so, what are those limits per quarter?
3. Beware of the no-cost Initial Audit
- Looks great, right? Getting something for free always has that appeal. However, while the low-cost TEM vendor will waive the cost of this service, they typically also waive the most impactful part of an audit. In this scenario, the low-cost TEM vendor will call the service an “audit.” However, the reality is that they are simply pulling the info off of the invoices to build the inventory (which is often an automated process). This is a flawed approach because many times the invoices themselves are incorrect – causing you to wind up with an incorrect view of your assets right from the beginning of the engagement. In contrast, the correct way to do an audit is to measure actual assets against actual usage, which can only be done properly by matching contracts to assets to expenses. There is some automation involved here as well, but the most important findings are typically identified with human eyes.
- Questions to ask: Be sure to ask TEM vendors about the details used to perform the initial audit. You’re trying to stay away from the invoice only approach. You want to drill down into what level of detail they will use to perform the actual audit. If the vendor is using words like “comparing expenses to contracts” or “usage-based approach,” you’re probably heading in the right direction. Also be sure to ask about automation vs. manual reviews. If it’s fully automated, you’re likely not going to get what you need out of it.
4. Audit Frequency…. Or Lack Thereof
- Audits are not a one-time thing, and should be regularly performed. Many TEM vendors don’t specify what frequency they will perform ongoing audits within their contracts. They’ll have language that says “regular audits” or “timely audits” performed annually. However, there are many instances in the market where vendors don’t perform any sort of audit until you, as the client, raises the red flag.
- Questions to ask: Ask how often audits are performed. See if it’s stated in the contract in actual numeric terms. If it is, as in the example with the internal audit, drill into whether the audit is an automated audit, or one that includes a manual human touch.
5. Skinny TEM
- Those familiar with the industry understand that TEM isn’t just one thing. It’s a combination of software and services that allow organizations to realize the full return on investment. Many low-cost TEM providers reduce services which are typically standard offerings with other vendors. Common reductions in service include inventory management, sourcing management or dispute management (broken down by each carrier). You may not be looking for these services in the end, but the goal is to make sure you’re comparing an apples-to-apples program when speaking with various TEM providers.
- Questions to ask: Hone in on these common reduced services by specifically drilling into which (if any) are part of each vendors proposed program. Because these services are labor intensive, they can be where low-cost TEM vendors are cutting, leaving you with the bare bones of invoice loading and bill payments.
The TEM industry is a complex market, filled with various offerings and services. Whether you’re looking for a full-feature TEM program or one that is on the skinny side, your choice will depend upon your requirements. When you go into the proposal stage with your eyes wide open and understanding the differences between the two, there are less surprises and more satisfaction.