A few weeks ago, I had the pleasure of visiting my brother in Manhattan. While tooling around the city, we rode past an area under an immense amount of construction: Hudson Yards. The development project, which is transforming 28-acres of space above a railroad system into an entirely new neighborhood, sparked some interesting conversation in our Uber ride.
We were in the middle of discussing the multi-million dollar contract award for elevators when someone in the car raised the question, “how could all of the building developers agree on just one elevator company?” and my brained flipped into “sourcing mode”. I began explaining how businesses can come together to leverage spend and that the very same idea is applicable to many companies, whether it is separate companies coming together through a GPO, working with mergers/acquisitions to create centralized spend, or simply different divisions within a company agreeing (usually with a gentle nudge from Procurement) to standardize on one or multiple suppliers.
Procurement is crucial to unifying different divisions, business units, and/or stakeholders from disparate areas to establish agreements that will benefit the company as a whole. The challenge, however, is knowing how to make this alignment happen.
The first step is to understand the current state; how were the suppliers chosen and what are the different requirements of each department? You can do this by holding interviews with each area to understand why they are using the current supplier and what it would take to make a change. Be sure you are taking into account each group’s considerations and service expectations as you develop requirements, as well as what is high, medium, or low in terms of priority.
Next, try to establish an upfront commitment among the different groups to collectively choose a supplier. It’s important to get buy-in early in the process to support implementation and utilization of the chosen supplier. Of course it is not a guarantee at the end of the process that the stakeholders will follow through on the commitment, but it sets the expectation to drive compliance once the chosen supplier is implemented.
To support the process throughout, Procurement should establish a clear decision-making team and ways to encourage collaboration among the different groups. Setting the decision team upfront will allow you to properly escalate throughout the process as well as keep decision making to a consolidated team. If you wait until you’re further along in the process, you may run into scenarios where too many stakeholders are involved and can potentially create an impasse in moving things forward.
Finally, once you have standardized your supply base, actually take time to prove out the benefits to your stakeholders. Sometimes standardizing suppliers is as simple as putting together an analysis to show your “rogue spend” stakeholder the savings that could be achieved if they were to use the primary supplier. Even if there is not line item savings for every item, be sure to explain any rebates based on aggregated spend, SLAs established with the supplier, or just future leverage that the company will benefit from by standardizing to the primary supplier(s).
While we don’t all work for development companies with billion dollar opportunities to offer our suppliers, you can still focus on leveraging spend where you are able. By focusing your stakeholders on the bigger picture and the attainable results, you can drive compliance and support for your sourcing efforts.