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.
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