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.
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.
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.
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.