Price Transparency and Bundled Pricing

I recently read an article on about alternatives to Benchmarking. There are a lot of standard points made in the article - Benchmarking is combative (no news there) so some alternative language should be considered. While several contractual remedies are put forth, the one item that all feel would make a difference in the Client/Supplier relationship is Pricing Transparency.

I have to think back on my career in sourcing advisory and, well, I cannot agree more. While I'm not sure price transparency will solve every need for clients to occasionally have a tough conversation about whether their deal conforms to current market standards (be it via a Benchmark or other efforts), price transparency is a great start.

So what is price transparency? The ability to isolate and identify key cost/price drivers. Many sourcing advisors still advocate highly bundled pricing units that are a single price for the Supplier's labor-based management costs; underlying assets (HW + SW); maintenance; and other costs (transport for example). The argument is that if you're giving the Supplier full responsibility, give them all the costs and allow them the degree of freedom to provide a fully managed service, which is manifested in a high level of SLA.

What could possibly go wrong with a bundled pricing unit? Well, if it's a cloud-based service where the underlying infrastructure is 100% fungible, it makes perfect sense. But if the Supplier is assuming (or undertaking) financial responsibility for assets, maintenance contracts, and support FTE, you absolutely must have 100% visibility into each price component (and preferably separation of each price component).

Clients who are on their 2nd, 3rd, or other round of outsourcing are absolutely adamant about price transparency - for good reason: unwinding an agreement based on bundled pricing is expensive and frustrating. And trying to Benchmark a bundled pricing unit is also difficult - you end up compared to similar situations with similar obscurity.