While far from ideal, organizations sometimes find themselves dealing with categories of unregulated spend yet simply do not have the resources to run a full sourcing event. If you find yourself in this situation but are assigned a tight deadline to generate savings, the opportunity to gain a “quick win” is still possible via aggressive contracting.
The first step in this process would be to identify the top spend suppliers you wish to begin direct negotiations with that are related to this category. The most effective approach to identify these suppliers would be via internal GL data reports exported and properly sorted to identify suppliers your organization conducts the most sales volume with. Once the top spend providers are identified, begin reaching out to these sources and explain your interest in entering into an exclusive contract with one sole supplier. From this point forward, you now have leverage to begin the negotiation phase of potential terms and conditions of a future contract with the supplier that provides the best deal for your organization.
Below is a list of potential contractual terms and conditions that can help generate immediate savings for your organization:
If you envision this supplier being a required provider for as long as your company is in business, the agreement of a long-term non-compete deal in exchange for an upfront signing bonus may be obtainable. Be forewarned however, many supplier often times attempt to recover their losses from a signing bonuses via inflated unit costs. To help avoid this, I strongly suggest implementing customer specific pricing which leads us to our next point.
Exhibits Section for Customer Specific Pricing
Customer Specific Pricing, which is also abbreviated as CSP is a quick and effective way to have discounted pricing applied to your top spend items. A quick analysis of top spend items utilized by your organization through supplier usage reports will help identify which items are purchased the most on an annual basis. Working with the supplier to quote and apply specialty pricing as an exhibit at the end of the contract will generate immediate and noticeable savings as a result of the consistent high usage historically identified with these items.
Rebates can be delivered and negotiated in a variety of ways. For instance, you may be able to negotiate a percentage rebate on total annual sales once a certain threshold of spend is achieved. You may also be able to apply incentivized rebates associated with parameters that make doing business with the supplier easier and less labor intensive on their end. For instance, an incentivized rebate can be negotiated if your organization agrees to place orders on the supplier’s website instead of manual PO submissions.
Value adds qualify as an area where the supplier can provide additional services that historically have a fee associated to them that are now free of charge or negotiated at a discounted rate. For instance, free shipping would qualify as a strong value add in any contract. Other services such as free on-site repair and service are other points that could help negate costs that your organization had historically paid for.
Often times suppliers offer products that fall within numerous subcategories. For instance, a general industrial supplier offers a wide array of products that fall within subcategories ranging from safety equipment to hardware, abrasives, and electrical components. Negotiating a percentage discount to each of these subcategories will generate savings across the board as these discounts would be applied to the standard catalog price your organization has historically paid.
In a perfect world, a full sourcing event can achieve significantly more savings. However, if you’re in need of a quick win the terms and conditions noted above can still help put your organization in a better position that it previously was.