Choosing the external supplier for product development

As a Product Manager, you liaise with a number of teams and often make use of the people, competences, and resources at the disposal of the company. Sadly, the existing resources happen to be overloaded, or the organization lacks competences or people that are required at the moment.

In such situations, we are faced with the necessity of employing an external team to support high-priority tasks. The most popular choices are:

• creative agencies
• UX/UI teams
• development houses — offering coding services

In some cases, the Product Owner will find it most convenient to cooperate with one subcontractor that will offer people with all the required competences, be it creation, UX, technology, etc. In order to manage such a cooperation, the Product Owner needs to be knowledgeable in many areas, at least on a fundamental level. They need to know how to order a product and how to set up cooperation with the external supplier so that the budget is used to the maximum efficiency.

Cooperating with external suppliers is no mean feat. This article will show you how to choose a subcontractor for a project — how to cooperate with sourcing departments, make a tender, what supplier criteria need to be verified, and how to negotiate efficiently.

What and who do you need? — identification of needs

Most companies are brimming with people who have their hands full of work. At least it seems so at first glance. At the same time, however, there are a number of people in the company that can do your tasks.

If you decide on an external supplier, you need to clearly specify what you need. Make sure all your internal options have been considered. It is most likely you will use both your internal resources and external ones.

Also, make sure that your internal people are designated for your project. Why? Often, employees with project designations have different priorities and their bonuses, likewise, are located elsewhere. You need to be positive that the product you are building has a dedicated team — both internal and external.

Are there no ready-made solutions?

Before you decide on cooperation with an external supplier, check whether a ready-made product or a component already exists — something that you need and can make use of.

Example: you need a tool to promote an event. Check the ready-made tools: from simple landing pages through mailing, social media ads, text messages, through a mobile event app. Developing such tools from scratch means there had been no good prior analysis of available tools and the company may incur unnecessary costs.

Selecting a contractor is a long-term deal

The selection of a contractor will often depend on the Project Manager but it is frequently the voice of the Product Manager who announces the final decision. When deciding on an external partner, keep the long-term perspective in mind. Most likely, the project will not be completed in the allocated time and will not fit the designated budget — statistics say this particular problem is known to 70% of all projects. If, however, the project is completed, after many battles fought to its name, you will most likely invest so much time in relations with the contractor that even when the project documentation is just about perfect — you will invite the same contractor to do the next part. Also, companies have a natural inclination for risk avoidance, so even in case of completely satisfying deals, there is a chance cooperation will be extended.

Request for Proposal (RFP), or on working with the sourcing team

Most often, large companies publish their requirements as requests for proposal or some variant thereof (request for quote, request for information). Each of these aims to get to know potential contractors, getting the best possible price for the order, and what is important — provide initial reconnaissance of the market.

Choosing the contractor is also a learning process for the Product Manager. First, a simple explanation of what you are looking for will be needed (for the sourcing department). During the process, you will also need to get to know the market, making the request specific, and answering the bidders’ questions. It is a set of lessons which, from the viewpoint of a Product Manager, are important. A visit to the sourcing department is usually necessary and if you have not been deep into purchases, you will be surprised at how much formality there is in outsourcing literally anything. There is no sense rebelling against all the red tape — anyone who has spent some time in sourcing knows it is a hard place to be. You are not completely certain as to why you are ordering something, for whom, etc., and still everyone expects things to run smoothly. The actual trap is in the time it takes to go through all the procedure of market analysis and contractor selection. Therefore — plan ahead! Frustration from the sourcing department is also due to the fact that needs are requested “ASAP”, while acceptance procedures take too long to complete.

There is a slight chance the Product Manager is employed in public administration, but still public tender laws are in effect also at universities or when doing EU-funded projects. You need to exercise special caution in such cases. A misconducted process may result in numerous appeals or even canceling the tender.

My two years of experience from working at one of the ministries showed that choosing new computer hardware, following a canceled bid, took almost a year and meant that we needed to work on obsolete hardware. Therefore, it pays to have good relations with the sourcing team.

How to set the criteria?

The criterion which is easiest to evaluate is “100% price”. If you want to purchase a product or service that is comparable and can be clearly described, such approach is worth recommending. Let us think in such criteria of delivering parcels or leasing cars.

If, however, the result is unclear to you — the below scenario is very likely:

1. How the customer described their needs. 2. What the designer understood. 3. What the analyst modeled. 4. What the programmer coded. 5. What the marketing team sold. 6. The documentation. 7. The functions which were included. 8. What the customer paid for. 9. The scope of technical assistance. 10. What the customer actually needed.

For a Product Owner, non-monetary aspects are the most important. It is difficult to fully describe a product that is still in the making, especially if we lack technical know-how.

The other approach is “predefined price”. This means that an offer includes a note about the available budget and offers need to fit it. This is a frequent approach in marketing campaigns. If your heart does not cater for the “100% price” approach, five issues should be considered:

• Is the supplier a specialist in what we want to order? If the company focuses on VR trainings, they are very likely to forecast most of the pitfalls we will face when designing such trainings. This will be less true of a VR company or a training company. They also should offer a few tested solutions which will make the whole process shorter.
• What is the supplier’s portfolio? Please bear in mind, though, that some customers reserve the right to boast the achievements of the organization and sometimes a contractor for world-renowned brands will not be able to quote some projects.
• Does the suppler offer references? Booking.com, ZnanyLekarz, and TripAdvisor taught us to look up ratings. Trade rankings for IT companies can be found on Clutch.io — sadly, not localized for Poland.
• Who are the people representing the company? Check their LinkedIn profiles as well as comments they post on the Web.
• It is worth asking around as well as posting questions on dedicated groups. Outside of your personal network, you can browse dedicated message boards. A simple idea is to post on to “rozmowy o startupach” (talking about startups) group, where about 50 thousand people interested in new businesses can be reached. There is a high chance the members will point at some potential contractors. It is not that hard to get to know one another and chat with a potential supplier on Messenger.

Narrowing down the list

Choosing the subcontractor will take a few days to a few months. If your product is developed by a recognized company, there will be a lot of potential contractors and you can ask not only for references but even sample work for the project to be completed. The workload ought to be proportional to the value of the order.

It is also worth creating a wide access funnel — invite a lot of companies to submit tender offers, quickly eliminate those that are of no interest to you, and start talking to a few potential suppliers. We need to remember that companies will come with many questions and it is worth answering them: all in public and anonymized. If one of the bidders asks a question, everyone else will, as well as they will expect the answer. This will bring some profits:

• the bidders will not repeat the same question over and over again;
• the quality of the offers will rise;
• the more knowledge bidders have, the higher the quality of the requests for quotation.

Selected the supplier? Time to negotiate the conditions

Once you have selected your supplier or subcontractor, it is time for formalities — the contract, including a confidentiality agreement — and price negotiations. My experience shows that even at this late stage, price negotiations can be beneficial. I opened my eyes with surprise after, when negotiating a project for a corporation, the subcontractor was able to shave off a few per cent of the original bid price or to add extras to the scope of work. Even after they knew they were selected for the job! Extras in the offer may be helpful, as during the subcontractor selection stage you might not notice there was something important missing in the original bid. A subcontractor may offer a lot, as they know an extended offer can result in future deals that will be beneficial for them.

Also, remember that contracts are written for bad times. It is worth including clauses related to improper performance, i.e. penalties for delays, as well as describe the scope of work in as much detail as possible. Remember, the bidding party already invested much to get the contract and will therefore be willing to make compromises at this stage. When striking new cooperation it is easier to make concessions and it is equally easy to construct contract points in a way which will make it possible to put pressure on the subcontractor. The last stage of negotiations is usually accompanied by delays and we want to get things rolling. Still, it is worth remaining calm here and be consistent, as a small defect to the contract may influence the whole project timespan.

Author: Dr Krzysztof Wojewodzic, CEO of a software house https://escolasoft.com