This is the second discussion in our “Price Analysis of a Unicorn” series. We will talk about specific methodologies that you can use to analyze unique items and services that have never been purchased before. We will focus on getting suppliers to provide their OWN price analysis and conducting an adequate and accurate similar-to analysis.
Today, I’m starting with something a little bit sobering. If you don’t know anything about it, on your screen you see Ahmaud Arbery. He was killed as an act of hate. And so any of you that walk or run, take time today to run 2.23 miles or walk or whatever it is you do.
His birthday is today. He would have been 26. He was killed on February 23rd. And if you don’t know about Ahmaud, then I recommend that you go out and learn a little bit about him and learn about what happened because it’s despicable. And it’s just something that I wanted to mention before we get started today. So, with that in the back of our minds, it feels a little insensitive to continue forward with what we were talking about, but just like we are in light of COVID-19 and everything else going on, we all have a lot of things going on and we need to keep moving forward.
So, we’re going to continue our discussions around SpendLogic and price analysis. For those of you that don’t know about SpendLogic, check us out. What we do is online price analysis, commercial item terminations, and source justifications. You can check us out at spendlogic.com. Think of us as TurboTax for price analysis and source justifications and commercial item terminations. You can access us anywhere, anytime, and that’s something that our clients are really reaping the benefits of right now.
This is not one of our main selling points typically, but now that everybody is working from home, it very nicely, you know, dovetails with the current situation. So, if you don’t know about us, check us out. There’s a zero-dollar trial on our website that never expires. So, you can give it a try and keep using it if you only need one license. If you need multiple licenses across the organization, then you can go ahead and purchase those.
All right. Let’s get started. So, this is Session 2 in our “Price Analysis of a Unicorn.” And today, what we’re going to speak about is really methodologies, and how do we move forward? What do we do with the information that we have or what we know? So, we’ll start out with a quick overview and review of Session 1, and then we’ll quickly move into some solutions and possible avenues forward that you may or may not have thought about.
I will start by saying that there is no silver bullet as far as price analysis of a unicorn goes. If it’s something that you’re unfamiliar with, it’s not easy. No matter what tools you use, it’s going to take some work. These are the toughest ones to do an analysis of, and they’re actually the most important. They’re actually the whole reason that we have price analysis requirements.
If you can’t tell how much something is worth, then the seller can basically sell it for whatever price they want, which is not something that taxpayers want to hear. Okay, so we’re all on the same page there. Let’s do a quick review of Session 1. So, in very general terms, the purpose of a price analysis is to establish a fair and reasonable price for use in negotiations.
Number two, you do this by using known prices that can form a basis of comparison. And number three, your conclusion does not need to accept the proposed price. Even if they won’t negotiate down to your analysis value, you can still move forward. This is something that we set forth in the first session.
If you’re unfamiliar with these or you want a little bit more information, go ahead and check out our Session 1 overview that we did last week. It’s on our website, spendlogic.com/events. All right. So, where we left off last week was this idea that price analysis is impossible, right? That was the last slide of our discussion.
And we were basically saying, you know, this is something we’ve never purchased previously, we can’t compete it. There’s only one company that sells this in the marketplace. I, the buyer, am the only one that buys this out of anybody in the entire world. It’s very special, and there’s nothing in the marketplace that I can compare it to, right? So, this is, in a nutshell, what we’re really talking about, this situation.
It happens more often than you’d want to believe. A lot of people run into this quite a bit. And everybody is looking for what I call the “homework machine.” Basically, it’s this concept that, you know, as a kid, you wanted a machine that you fed your homework in one end, and then out the other end came the answers, and the homework was completed, and you didn’t have to do anything.
That’s the holy grail of price analysis. We would love if we could just tell something, “Hey, I’m buying a widget that has X, Y, and Z,” and, boom, here’s your price. In reality, it doesn’t work that way. So, we have to come up with methodologies that address, you know, some of these difficulties. Now I will say that in all the years that we’ve done cost and price analysis for our clients, we have never once run into a situation where price analysis was truly impossible.
Price analysis is possible. However, it is somewhat dependent or highly dependent on the tools and capabilities that you have available to you. So, as far as tools go, there are tools out there, but in some cases, because of company policies or whatever, you may not have access to those tools.
The other is your capabilities. And I don’t mean this as a dig to anyone, but if you don’t have a lot of experience in the industry, it’s going to be difficult to do these. So, you have to rely on folks with more experience. We’re going to talk about that here in a minute. It may be inside your company, it may be outside your company, but there are resources out there available.
So, let’s dig into it. I’m going to go over three solutions today. Number one is very obvious, or it should. It seems obvious, right? But number one, get more information from your supplier. And there’s three things that I’m going to dive into as far as getting more information is concerned. Number two, request technical assistance.
We all know what that means, but how do we do it right? And third, how do we reach out to a third party? What third parties are out there? What can we do? And what does that actually mean? So, let’s get started with number one, getting more information from the supplier themselves. There’s three ways to do this.
The first is the one on your screen right now. Is this item the same or similar to something else that they’re selling to their other customers? Now, they may be saying, “This is something that we only sell to you, all right? And you’re the only ones that buy this, this, that, and the other.” In reality, they’re probably doing something similar for other folks. And, you know, it may be a stretch to compare those, but of all the resources out there, of all the theoretical models, of all of the technical evaluators, of all of the tools and everything out there, the resource that will be the most useful for determining price reasonableness is your or could be your supplier.
If your supplier says, “Go pound sand, I’m not telling you anything,” then obviously they’re not going to be very useful. But there is no one in the world that knows more about the price of the item or service that you’re buying than the supplier themselves. That’s an important thing to remember, and it’s something that we often overlook. For some reason as buyers and contracting professionals, we think that the price analysis has to be done with the knowledge that we have in our heads.
And there’s almost a wall between us and the seller that we need to work completely independently of them. Your price analysis does need to be an independent and objective review of price, but that doesn’t mean that you can’t use all of the resources available, including the supplier themselves. So, first and foremost, check with the supplier.
This is one way to do it. Do they sell anything same or similar in the marketplace? If they say yes, all right, you just need to… The trick is really documenting it, right? Do they have a public catalog? Okay, this is tricky. Is the catalog available to the public?
And is the catalog representative of prices paid? So, can I actually click a link or call and say, you know, “I’d like to buy this,” and you can buy it for that particular price? Now, the other half of this is, are other people paying these prices? We all know instances where, sure, we’ve got a public catalog, and here’s our catalog, and this is a price, but does anybody actually pay it?
Think about the case of, like, a used car. How many people…? It’s reasonable to say that there is a catalog that’s publicly available on the website of any car dealership. You can look and see what prices are for anything. Everybody is offered the same price. Now, what people actually pay is a completely different story. Some folks walk in and they pay the least price and they just want to get out, and that’s fine.
But for the most part, there’s some negotiation that happens, and there’s going to be an average negotiation decrement. So, these are some of the things that you have to think about when you’re looking at a public catalog. Last but not least, if there’s any other support for prices paid by other folks. So, maybe it’s redacted invoices, right? There’s lots of ways to show what other people are paying.
You just need to make sure that that documentation contains enough information so that you can do an adequate comparison. Two things that you really need to pay attention to are the date that the transaction occurred. So, if this is very, very old, 10 or 15 years old, then it’s not going to be as valid. And number two is the… Well, I guess there’s three things.
Number two would be the quantity of items ordered for that unit price, and number three is the actual part number or the unit, the item or service that is being transacted. How similar, how different, what are the similarities? What are the differences? So, you really have to get into the minutiae of how these things compare across all of these different descriptors.
The second area that we can talk to our supplier in is requesting cost data. You know, we’ve all heard of other than certified cost or pricing data. So, if it’s under the “TINA Threshold” right now, if it’s under $2 million, then you don’t have the ability to get certified cost or pricing data. However, that same data can be provided to you as other than certified.
And other than certified basically means that they don’t sign. Not even basically, it literally means they don’t sign the certification. And the fact of the matter is defective pricing does not apply. So, they can kind of show you whatever they want to show you in whatever format, and it will count as other than certified cost or pricing data.
Now, what I would recommend is getting, at the very least, a split between labor and material dollars, okay? If you have those pieces, you have the basis for what we’re going to talk about in a minute in going out to some sort of a technical evaluator, some professional that knows more about this. In some cases, you may know enough about this yourself.
So, get the level of information that you need in order to do an adequate price analysis. If you don’t understand this product and you don’t have access to a technical evaluator, then you’re really going to want to get more in-depth information, request hours, request labor categories, request experience, and education, you know, as much low-level information as possible. If you get labor and materials, if you at least get those split out, what you can do, and this is how SpendLogic works as well, you can do an analysis of labor, and you can do an analysis of material.
It would basically be two price analysis reports. Once you have those two pieces split out, you have any of the price analysis methodologies available to you. For labor, what you could do is figure out your labor categories, figure out adequate labor rates, and then back into the hours that would be required. SpendLogic does a great job of doing labor rate analysis and can help you back into those hours very quickly.
Second is to do, A, analysis of the material dollars. And really material dollar analysis is any of the material or any of the analysis methodologies that are found in the far. So, you most likely are going to probably be doing something around similar twos. As a huge, you know, end item deliverable, you may not be able to do that similar two because it’s so unique, but when you get into the components of something and the actual pieces that make up the end item, you may find that you can actually start doing some similar twos, even if it gets down to the raw material standpoint.
There’s lots of resources out there. And that’s most of the time what we end up doing. You can do parametric, you can do published price list, you can do some other things, but by and large, what we find to be successful is some sort of market comparables analysis once you get that data. The third of the three methodologies for reaching out to suppliers is, and this one is a little bit surprising to a lot of people, reach out to them and have them write their own price analysis.
Okay, what does that mean? Right? How do you have a supplier write their own price analysis? Well, let’s jump to the end. The price analysis is always going… Well, in theory, the price analysis that a supplier writes is always going to be equal to or greater than the price of the item or service that they’re offering, right? So, how could that possibly be valid?
Well, I’m not saying take their price analysis and accept it, right? Basically, what you do is you have them write the price analysis, and when they provide it back to you, it gives you a starting point for having discussions about the price and for doing your own price analysis. Perhaps they do a market comparables analysis and they identify competitors in the marketplace or competing items that are similar and somehow different, and they can kind of explain, okay, here’s the basis for the pricing differences between these.
This is an extremely effective method. If you can figure out kind of how to do it and if you can work with your supplier to understand. The trick here is making sure that you get something back that is truly useful, right? One way to do that is to use SpendLogic. And many of you that are watching this here today are clients of ours.
And for you and for those of you that are new, I’ll give you a quick review or a quick overview of what we do in SpendLogic. So, first and foremost, if you go to SpendLogic, you can get a free license or your suppliers can get a free license. Let’s say that, you know, you’re doing a price analysis on somebody, they’re a small business, they don’t have SpendLogic, send them to our website, spendlogic.com.
They can go to the Try tt Free button, click there. They can get a free download. They can also do sign-up up here in the top right corner. Either of these will result in a single-use license. So, they can’t see reports across their organization, but they can create reports themselves. Once they do that, I will show you, once they do that, they can go ahead and…
Let me get this back up here. They can go into SpendLogic. And once you’ve created reports in the system, so they would do a new report, click New Report, and they would create a price analysis.
Once they do that, they can click this little button. It looks like a square with an arrow up to the right. What that is is export, all right? And Export creates a file that can be emailed. It’s a zip file. They can email it to you as the buyer. And when you are in your own copy of SpendLogic, you simply click Import Report.
What that does is it gives you a usable copy of the SpendLogic price analysis that they’ve conducted. You can go through screen-by-screen, you can change it, modify it, you can just use it to ask questions. But usually, what our clients are doing with it is they’re using that as kind of a first-blush look, and then they may add additional market comparables, they may add additional historical methodologies.
There’s lots of ways that people are using this. But this will get you out of the this is impossible. If you can have your supplier do this and provide you with a report, all of a sudden, you have a basis for having these discussions. If you need more information on that, reach out to us at [email protected] and we can walk you through it.
Next is to…and this goes hand-in-hand with some of the other things that we’ve talked about with suppliers. So, if you’ve reached out to your supplier and you’ve gotten certified cost or pricing data, or other than certified cost or pricing data, that information may or may not be useful to you at face value. You may have to request technical assistance. In a lot of cases, this is a problem in and of itself, right?
So, it’s easy for me to sit here and say, “Yeah, reach out to your tech evaluator or your engineer.” In the best-case scenario, what you would do is you’d reach out to your engineer and you’d say, “This is the information that I need, right? I need to talk about labor hours. I need labor categories and material bomb in a similar to analysis of that material.”
If you can get those pieces, what you can then do is run a price analysis on each of those factors. It’s easy to do that in SpendLogic, but you also have the ability to do your own methodologies, whether you use Excel or whatever tools you use, SpendLogic, Excel, whatever it is. You know, in order to move forward, you just need enough information to kind of get moving in the right direction.
Now, some of the issues with requesting technical assistance, right? A lot of times we hear, “Our engineers won’t support us. We don’t have a budget line.” That’s an internal problem, and I understand that that happens at a lot of companies. Number two, even if your technical folks are available, a lot of times what they’ll do is they’ll provide you a written statement that, “The price is reasonable based on my experience and expectations or something like this,” which is basically useless.
You know, there’s some training that has to happen. You have to teach your folks what it means to provide you with a technical analysis and a technical evaluation. And part of that is asking the right questions and getting the right information back from them. So, if you have templates, great. If you don’t, reach out to us and we can help you out and put those in place.
But again, it’s really helping them understand what it is that you need. One way that we’ve seen folks do this also is to bring their technical folks, sit down next to them, and walk through SpendLogic. So, many times the technical experts are nervous that you are trying to replace the item that they currently use today.
So, if they really need this particular item from this supplier, they’re saying, “Listen, if I tell you that something else is comparable, then you’re going to go buy it, and I’m going to be screwed up in our production. They need to understand that that’s not the case. What you’re trying to do is figure out whether the price is reasonable, and the way to do that is by comparing it to something else in the marketplace. Obviously, if the price is not reasonable and the marketplace is, then there’s some questions that they’re going to have to answer, but it’s not just that you’re trying to drive the price down and take whatever in the market is available.
So, if you sit them down, walk them through the tool, and do it side-by-side, a lot of times you can get where you need to go much quicker than an email request and get something back, and then go back and forth over email over the course of a week or two weeks and never actually get anywhere. Third, if all of those difficulties with technical assistance fall through, which they often do, reach out to a company like ours, SpendLogic, right?
We have capabilities that you just won’t have at your company for various different reasons, right? We have a much wider array of technical experts. So, we are not just specialized in any one industry or any one category. We have the ability to reach out to technical experts in various industries, in various categories.
And that’s not something that is easy to do within a company. I worked at Boeing for a lot of years and I saw this firsthand. I know how hard it is to do something that should be simple, right? Go get some help. Well, we can’t get help because we don’t have a budget. We don’t have a budget because of this and that, you know. I get it.
Second, direct experience with Primes, and DCAA, and DCMA. We work with these folks every day, literally. So, we understand what it takes to document these analysis decisions or analysis positions such that they’ll get through review both for the Primes and the Defense Contract Management and Audit agencies. And third, bandwidth to dedicate.
A lot of times, you know, what people are doing is the price analysis that’s easy floats to the top, and those are the ones that get done. The hard ones get older and older and older, and eventually, they get to the point where you place the PO and you’re back into that justifying a price paid, right? You got to stay out of that. What we can do for you at SpendLogic is provide those services when they’re needed.
We have bandwidth. It’s our job to have bandwidth. So, reach out to us and we can get your price analysis pulled to the top of the pile and get it taken care of for you. Also, you know, when your engineers say, “I don’t have time,” or, “This isn’t a priority,” again, that’s what we’re paid for. It is our priority.
We do have time, and we will get it done for you. We have additional training and resources available as always at spendlogic.com, so check it out there. We’re going to continue this series next week with an even deeper dive into an example of a price analysis of a unicorn next week.
So, we’re going to make some assumptions, and we’ll show you how to document it in an actual written report. So, that’s on tap for next week. Be sure to tune back in Friday, again, same bat time, same bat channel, 10:00 a.m. Pacific Time. And there’s a couple of other resources there on your screen, WIFCON and NCMA Collaborate. If you haven’t already, subscribe to our channel and you will get updates when we post new content, and we have new webinars scheduled.
Also, check out spendlogic.com/events where you can always access the latest and greatest information and you can see what we have cooking in the coming weeks. Thank you very much for your time and consideration. It’s very valuable to me, and we appreciate everybody that’s reached out and sent us questions and requests for information.
So, keep it up. Reach out to us anytime, and I look forward to talking to you again soon. Thank you.