It is common for business professionals to think
of procurement simply as a game of price. To some extent they are correct;
any good sourcing initiative will feature unit-cost negotiations that
ultimately lead to price reductions and hard-dollar savings. However, to
get the most out of your procurement efforts, you should go beyond the dollars
and cents to also add implicit value to your company’s supply-chain. A
well-rounded sourcing project will address procurement strategies and
fundamental supply-chain properties, including Supplier Relationships,
Predictability, and Sustainability.
Supplier Relationships:
When sourcing a strategic spend category,
identify suppliers with whom your company can form mutually-beneficial, and in
some cases long-lasting, relationships. Collaboration is absolutely
essential to optimizing your procurement processes. First of all, this
will help ensure that all agreements are honored and upheld by both
parties. Furthermore, symbiotic relationships foster continual progress
and improvement, so you can truly get the most out of your supply-chain.
Purchase goods and services from reliable vendors that you can trust. Ultimately,
by connecting with the most dependable and responsive suppliers, you will be
able to add long-term value to your company.
Tip: Communication
is key! The best suppliers will always be transparent because they have nothing
to hide; they know that they offer high-quality products, reasonable prices,
and good customer service. So, by engaging in meaningful, dynamic
discussion with all your incumbent and alternate sellers, you can quickly
identify the best of the best, while weeding out those who fall short.
Predictability:
A comprehensive sourcing initiative should work
to enhance supply-chain predictability through dynamic forecasting. This
will make for a lean and efficient procurement operation that uncovers hidden
value for your business. When buyers and sellers are not on the same
page about demand and usage schedules, you will often see surpluses and
shortages which can have dire consequences to your operational efficiency and
your bottom line. Too often, purchasers over-commit to volumes to
secure low prices. While the intention of reducing hard-dollar cost was
well-founded, the agreed-upon terms actually expose the buyer to compounding
risk as they begin to pay for over-utilization of storage
space. However, if you can communicate accurate demand forecasts to
your suppliers, you will ultimately achieve increased value and further
savings.
Tip: Accurate
market and usage data is absolutely necessary for predicting demand and
developing a sound procurement plan. Software and other tools are
available to help you collect and organize this data. Once you have access to
this valuable information, you can leverage it to make informed supply-chain
decisions.
Sustainability:
Promoting ethical procurement practices is
another great way to add intangible value to your company’s
supply-chain. Believe it or not, in the modern economy, sustainability and
profitability often have a positive relationship. Consumers increasingly
insist that companies act in a socially and environmentally responsible manner,
especially when it comes to procurement. They are willing to spend a
premium on goods and services that were manufactured ethically. Therefore,
when conducting a sourcing project, it is essential to balance cost-reduction
with sustainability. While you may be able to achieve low unit costs by
exploiting cheap labor or harmful materials, you could ultimately lose out when
consumers opt for a competing product that was manufactured more
ethically. Therefore, by emphasizing sustainability and social
responsibility in the sourcing process, you can boost the value of your
corporation.
Tip: It is
important to hold your suppliers accountable for their actions. This can
be done in a variety of ways, including creating sustainability guidelines or
even incentivizing ethical behavior. If you constantly demand responsible
practices from your vendors, your customers will take note.
All in all, to truly maximize your sourcing
potential, you must work to add implicit value to your supply-chain, on top of
explicit savings. Intangible improvements can be achieved by emphasizing
relationships, predictability, ethics, and more. If you take your
procurement efforts to the next level, you will find that your company
flourishes in the long-run.
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