Articles by "Directs"
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on Wednesday, July 03, 2019 0
When custom-built materials become necessary, they naturally introduce a slew of complications. Procurement teams have to work harder to identify suppliers, assess their capabilities, and monitor their performance in the long-term. Securing a great price, however, doesn't have to be so challenging. Check out our guide to driving savings from your custom-built material purchases.









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on Friday, June 28, 2019 0



A managed and strategic sourcing strategy for direct materials can pay great dividends in savings over the lifetime of a specific product line, but tends to be more technically involved and have a higher time commitment.

The gathering of technical specifications will usually take up the most upfront time. Interdepartmental communication within this phase of the sourcing process is critical in order to understand the hard requirements of the specifications as well as areas of flexibility.

For machined parts this will involve gathering a PDF drawing for each component for initial conversations with the machine shops, as well as design files in a generic 3D CAD format such as STEP (Standard for the Exchange of Product) which is in an ISO standard exchange format. Factors to consider may include tolerancing of critical dimensions, geometries of individual features, and material specifications and finishes.

In addition to engaging with the suppliers when initiating the relationship and during revisions of the drawings, frequent requoting with both the incumbent and a set of alternate suppliers can be a key factor in understanding the true competitive market costs.

When working with electronics parts such as Printed Circuit Board Assemblies (PCBA) the process becomes more involved due to not only maintaining the most current revision of electronic design files such as Gerber files, but also the management of individual off-the-shelf component specifications and availability, obsolescence, and substitution concerns.

The Gerber design files form the basis of the conversations with EMS (Electronic Manufacturing Services) suppliers and the quoting process, since they are in a generic ASCII vector format for 2D binary images of the circuit board's copper layers, solder mask, silkscreen, and drill data and can be read by any supplier independent of the original design program. PDF files describing the board's layout, schematic data, and fabrication requirements are also required for a complete and accurate quote.

Along with the design information a BOM (Bill Of Materials) is also provided to list each component of the board assembly. Within the BOM, passive electronic components that do not control current through a command signal are listed and may include capacitors, resistors, inductors, transformers, and filters. These components are usually more open to substitution, but sometimes have a critical tolerance value and any alternates need to be validated by the Engineering design team. The active components, which do control current, are more critical and can include most ICs/transistors/semiconductor devices, sensors, display devices, vacuum tubes, and silicon-controlled rectifiers. Active components have firm requirements due to design constraints and may be in short supply at times or need to go through a thorough end of life cycle upon obsolescence. This can include purchasing through brokers, negotiating directly with the manufacturer to ensure supply, purchasing a bulk supply to ensure a transition period, and working closely with the Engineering design team to validate an appropriate substitute and ensure a smooth transition to the new component.

Therefore, by dedicating the initial time necessary to gather all specifications and understand the constraints of the design, a program can be developed to provide year over year savings by requoting parts to maintain competitive pricing and utilize substitution and negotiation strategies with suppliers when individual part costs begin to rise.


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on Friday, March 01, 2019 0
Inventory is an unavoidable component within most businesses. And no matter the size of the business, establishing an inventory management system is going to make operations much more fluent. Common elements of inventory management include not only the inventory itself, but also the data surrounding inventory such as historical usage or cost data. Additionally, forecasting or inventory projections are going to come into play with managing the inventory levels, and will grow into a larger piece of the process as several business units or facilities are involved. Dependent on the industry in which the business operates, it is also important to identify safety stock or a buffer inventory. In some cases, establishing a reorder point or inventory par level is going to be necessary.

You might be wondering why businesses should put emphasis, or even more emphasis on this area. With regards to Procurement and more specifically, Procurement Transformation, there are key segments in which businesses focus on as far as making improvements is concerned: People and Organization, Process, Tools and Technology, and Metrics. However, inventory management tends to be an area that is often overlooked or underestimated. Though the other segments of a traditional Procurement Transformation are highly evaluated to identify opportunities for spend optimization and process efficiencies, these opportunities can more easily be identified and acted upon within inventory management. Therefore, there should be an added emphasis on this component within a business’ current Procurement function, as well as in a warranted Procurement Transformation. Having a well-established flow of inventory, whether that be raw materials, work in process, or finished goods, that keeps up with the company’s demand will empower them to maintain consistent production and fulfill customer orders in a timely and effective manner.

A business is not much of a business without inventory circulating through its operations. As the business grows, and even for small businesses, it is mandatory that the inventory is managed properly. Some businesses manage inventory manually, and many businesses leverage dedicated software to automate the process. As a business is putting more focus on this portion of their Procurement function, they will be better equipped to understand their demand flow and will be able to better gauge future demand, and do so proactively. While appropriately managing stock levels and circulating inventory, businesses can gain more control over how much they are spending on inventory, and make adjustments to improve the costs of having too much inventory or not enough.

As part of enhancing the business, the Procurement function may assess the cost benefits associated with closely managing inventory across operations. Whether this be by performing periodic inventory counts and manually monitoring stock, or by implementing a specialized inventory management system that actively monitors inbound and outbound product, identifying opportunities to enhance the various inventory levels and effectively manage this portion of the business can lead to significant, and almost immediate cost savings. In the context of direct materials, companies can drastically benefit from understanding their inventory rotation and either using or eliminating the parts that are subject to go obsolete. Keeping a lean inventory inclusive of a buffer will help the company accurately forecast demand and maintain a tight rein on the costs associated with this portion of operations. Ultimately, when companies are identifying options for better managing or reducing costs, it is worth looking into the obvious areas first, such as inventory.
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on Monday, December 10, 2018 0
A lot of the articles I write are about optimizing the tools in our Procurement toolbox and then using them effectively. These are certainly important practices, but what happens when we rely too heavily on this procurement toolbox? I’m going to use a phrase that I’m pretty hesitant about bringing up: “Think outside the box.” 

Wait – don’t stop reading. Seriously.

Don’t get me wrong, I realize why you’d want to. This bit of business speak has been overused to the point of becoming meaningless. It’s a challenge every management team has placed on every team performing every function in an organization for years. And, you know what? That’s a shame – because there are opportunities to think outside the box to achieve amazing results.

Think outside the cylinder
Let's talk about a relatively common category of spend – air & gases. If we worked for a brewery, for example, we’d be spending a good bit of money to buy the gases needed to carbonate our beer. These gases aren’t cheap – anything a brewery can do to reduce this cost will help the bottom line. So let's go to work.

Projects in this space follow a pretty typical process. In other words, we’re going to break out a pretty reliable and pretty heavily used set of tools from our toolbox. We may seek to go to market with an RFQ or RFP, intending to use supplier consolidation to drive cost savings through a common enough carrot/stick combination (“Win more of our business with a competitive bid… or do poorly and lose it all”). If we do well, we might save, say, 10% of our annual spend on gasses using these strategies. Not bad.

But let’s think outside the box. What if we could reduce the need to purchase these gases in the first place? Cutting the need for half of our yearly volume or more could dramatically reduce our production costs.

Carbon reclamation technologies aren’t necessarily new, but they may not be utilized by breweries. They may have a home in larger operations, but smaller breweries may not have any such systems in place. However, there are firms that are helping smaller breweries implement these systems - So, what if our hypothetical brewery bucked the inside-the-box sourcing strategy and elected to research a reclamation system? Not only are you eliminating a large portion of purchase needs, you’re also able to capture and reuse a high-quality, contaminant-free CO2 product.

What Makes this “Outside-The-Box” Thinking?
A lot of companies that purchase industrial gases view the transaction as a highly commoditized one. When going to market for commoditized products, we’re all conditions to view the event as one focused heavily on price.  The more mission critical the product is (such as gases used in beer production), the higher the degree of product specification. However, checking those boxes off puts us back in the realm of pricing.

Because of this, it can be easy to fall into the same old routine – get a few bids, make a buy. This is what makes thinking outside the box challenging – we have to force ourselves to reconsider that tried and true path. What other trails could we take instead?

It isn’t always easy to blaze a new trail. Attempting to do so won’t always be a success. Yet bringing about real, impactful change will often require this type of thinking. After all, you can’t get somewhere new by following the same old path.

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on Monday, November 19, 2018 0
Several industries (medical and manufacturing, for example) are being impacted by the newly implemented tariffs, and many companies across the country are fearful of the potential impact. Those industries who have not been impacted yet, will be affected with time. To begin the trade war earlier in March of this year, the US announced tariffs of 25% on steel and 10% on aluminum imports, drastically hindering the manufacturing industry as material costs have concurrently been on the rise for the better half of 2018. Not only have these particular tariffs impacted the manufacturing sector, they impact a significant amount of companies who rely on manufacturers for products and services for their own business, such as automotive or medical device companies.

There are many types of companies that are being influenced by the trade war, and the tariffs appear to be implemented in waves. Tariffs on metals appeared first at approximately 25% on imports, and continue to be placed on thousands of other core commodity groups. It is difficult to say what commodities will be impacted as the coming waves of tariffs that are put into effect, however it is possible to develop strategies in an effort to be proactive as the trade war progresses.

The trade war can present several challenges when it comes to developing strategies to mitigate risk and save business operations. Being proactive and thinking ahead is going to be a large component in identifying a feasible strategy to manage the impact of the tariffs. Performing quick, yet comprehensive research on areas such as if and how the business is potentially going to be impacted by the tariffs and identifying and qualifying alternate suppliers in other countries is going to be a crucial starting point for American companies. This will allow the company to gain a strong basic understanding of how the tariffs impact them and be able to piece together components for a suitable go-forward strategy.

Identifying alternate suppliers in other lower-cost countries and transitioning manufacturing operations away from China is a viable strategy that many companies are exploring as a result of the trade war. In order to maintain current costs and product quality, extensive supplier identification and qualification is going to be required as part of this strategy. Determining suitable countries that can businesses can migrate operations to, comprehending supplier capabilities in relation to the business needs, and analyzing costs associated with transitioning the business are going to play an important role in this primary strategy to operate around the tariffs. Additionally, it is important to maintain a level of diversity and refrain from putting all operations in one country, as it allows for more risk associated with having all Procurement's eggs in one basket.

Though there has not been one strategy that fits all scenarios regarding the tariffs, there are common elements to keep in mind as companies develop the strategy that best suits their company’s changing needs. The trade war has certainly become a challenge to work around, however it is important to identify the challenge it may pose on your company, and take action to develop a strategic plan to implement in order to limit the excess costs during this time.
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on Friday, August 31, 2018 0
One of the biggest challenges for a company can be the growth it experiences, especially if it is substantial growth in a short period of time. In many cases, companies do not have a well-established plan of attack for how to control and manage the growth. When developing a business growth plan, it is imperative to evaluate the company’s team, consider historical company data when assessing the current trends, and think ahead and strategize accordingly.

When significant company growth is on the horizon, a major starting place for evaluating the company’s capacity to take on the growth comes from the current resources. Evaluating the total number of employees throughout the company, as well as employees dedicated to the departments that are directly linked to the growth, which generally leans on the operations team. Ensuring that the team is comprised of enough resources is crucial, however it is a necessity to have an established training program in place. Employees can be capable of performing any task given to them, provided they have received foundational training as well as periodic development to enhance skills and evolve alongside the business. Although having enough resources, and consistently training and developing their skills is important, it is also a good idea to do the same with the company’s supply base. Many companies implement systems, whether it be an ERP system or another system, with their strategic suppliers. Companies can benefit from hosting periodic training sessions with their suppliers to ensure quality and compliance standards are being met during the growth period. Adjusting the company’s resources and size of the supply base will assist in monitoring costs and hands on deck when needed the most, and enforcing training sessions will only strengthen the company and its supply chain.

While evaluating the current team and supply base bandwidth, a step that can be performed concurrently involves reviewing historical company data to determine trends in the overall business growth. Any company can review historic data from last year, last month or even last week, however depending on the industry, the company may have certain variables to pay special attention to over others. For example, a company that sells winter sports gear will have a seasonal spike in demand, so they will want to compare their sales from the current fall or winter months to that of the prior year to have comparable figures. From there, the company can see how they are beginning to trend in comparison to the previous year, which will allow them to have better visibility and anticipation into their forecasting and demand planning for the remainder of the period.

To factor in the company’s growth, identify what percentage increase or decrease the company sees based off of the period being compared to the current state, which will provide more visibility into how business is currently trending. This then gives the company a more solid foundation to anticipate sales for that period of time. Reviewing historical company data is crucial in projecting sales at any given time, not just for periods of significant growth. However, it is still a necessary step to take to allow the company to stay ahead of the spikes and remain proactive in their planning and sourcing processes. With basing forecasts off of historical data, companies are able to give suppliers additional insight and more accurate forecast levels, ensuring business maintains consistency, especially during an increase in demand.

Though there are many ways in which a company can control and manage increases in business, it is important to make sure that the company not only has enough employees to handle the additional business, but that they are trained and their skills are consistently developing to strengthen the business overall. Additionally, looking back at historical data and sales figures can benefit the company’s anticipated business levels and identify trends. With improved visibility into the company’s trends, it will be easier to communicate increases or fluctuations in demand to suppliers, which will allow all sides involved to be proactive, rather than reactive. These two factors are relatively simple to keep in mind and assess, however they play a large role in controlling a growing business. If either or both of these factors are overlooked, it may cause tension within the business.
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on Wednesday, August 22, 2018 0
Whether you’re a market intelligence luminary and can predict the rise of manufacturer pricing before the announcement letters arrive, or you’re blindsided during a period of already high pressure to generate savings, managing cost increases is a sensitive but necessary part of any purchasing department.  Dependent on the category, supplier relationship, and overall spend leverage, there are a few ways of dealing with these increases that can result in cost increase avoidance, and even at times, additional cost savings.
When to negotiate directly with your supplier:

Typically a client’s first instinct when undergoing a period of cost increase is to outright refuse to accept the pass through costs.  While negotiating directly with a supplier, leveraging moving business elsewhere should an increase be incurred, has certainly been effective, it can also damage the relationship.  The risk of this approach is the supplier finding other ways to increase costs outside of unit price, a reduction in service quality, and at worst the supplier terminating the relationship and disrupting your supply chain.  To minimize these risks, this approach should only be taken under certain conditions.  One condition is that you are in the top 5-10% of the supplier’s customer base.  This meaning that you are one of, if not the largest customer they service, and they rely on your business for a large sum of their revenue.  You should also ensure that the remainder of your costs are fixed, meaning freight is included in the unit of measure cost, any service pricing is stated and held firm, and surcharges are not able to be added.  Lastly, the standoff approach should not be taken with a supplier that provides, mission critical, custom, or niche products.

When to go to RFP:

Should any of the above conditions not hold true, that may be signal that it is time to survey the market.  Engaging alternate suppliers in a competitive sourcing event will open up opportunity to drive competition, identify lower cost substitute products, and establish a relationship with a vendor more suited to your organization’s size.  An RFP should also be the primary strategy if there is a large amount of tail spend in a particular category which can be cleaned up and leveraged in a new contract with a new vendor, or if there are overlapping categories (i.e.: hoses and PVF) which can be leveraged under a conjunctive supplier for additional synergies.

When to engage in a tri-lateral agreement:

In the event that all of the criteria were in place for a direct negotiation, yet results were not desired or substitutions are not acceptable for a particular product, there may been an alternate strategy that can be used to prevent the cost increases.  If spend is significant with a particular manufacturer, organizations can enter into a tri-lateral agreement with the manufacturer and distributor, negotiating set pricing through the manufacturer that the distributor must pass through.  This special pricing allows the distributor to continue to provide the service as expected without them having to personally take a loss to hit the targets.  It also drives more transparency within the relationship, and will establish a direct line of contact with the manufacturer for communication regarding new products, emerging technologies, or market forecasts.

Occasionally, especially during periods of significant raw material pricing spikes, absorbing a partial increase is inevitable.  To manage this risk, agreements should have shared pass-through costs between the distributor/supplier and customer, supply base rationalization should be ongoing in categories with high tail, and purchasing volumes and practices should be optimized.  Otherwise, adopting one of the aforementioned approaches will ensure that you maintain a competitive advantage during period of market uncertainty.
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on Wednesday, June 27, 2018 0
Within procurement from a negotiation standpoint, one of the worst things a procurement professional can do is let a supplier have the upper hand. This is prone to happening with a single source or majority source supplier. Especially if the product or service they are providing is critical to your finished goods. Typically long term contracts are locked in with these suppliers controlling price, but what happens when the contract nears the end of its term? This is the supplier’s opportunity to increase price - and if you’re not careful they’re going to use their position as leverage.

The supplier will most likely site that they’ve held pricing and have postponed passing along increases due to raw material costs, inflation wage increases, etc. This may be true but if you don’t do your due diligence beforehand you have no way of validating it and have to trust the supplier. So how do you create the leverage you need to keep the supplier in check? The best way to do this is to identify a second competitive source. By doing so you have established a potential threat to the incumbent. However, if the incumbent is that critical to your operations they may stand pat and hold their position. Let’s explore some ways that we can strategically apply pressure to these suppliers without damaging the relationship. Side note, the majority of suppliers understand that even though there is an important human component to the relationship, in the end it’s a business and sometimes business decisions have to be made.

One key element is timing. It’s imperative to know when your contract will reach end of term. If your contract is about to expire with any strategic supplier you’re going to have issues. Depending on the category, estimate the timing you will need to properly evaluate alternatives. For example, if engineering is required from a testing and validation standpoint ensure that this is factored into your overall evaluation timeline. You should be preparing for negotiations well before the current contract expires. Whether this involves actually going to market or locking up an extension it’s important to ensure that you have all your ducks in a row well before. Keep in mind many contracts have termination clauses requiring you to submit a notice of cancellation well before end of term. The closer you get to end of term without a resolution the more leverage the supplier has.

As I alluded to earlier, you need to create a viable alternative to your incumbent supplier in order to create real leverage. The word viable is important because if it comes down to it you need to be able to actually switch suppliers. In many cases this means that the product must be properly tested, evaluated and approved. Everything must be in place prior to your incumbent’s contract expiring otherwise you could risk significant supply chain disruption. If an alternate is being evaluated typically the incumbent catches wind of it, which increases your leverage during negotiations. In a nutshell be conscious of when key contracts are coming up to term, don’t be caught off guard, ensure you have a strategy in place well beforehand and don’t let the supplier drag out the process. If possible, always have a secondary source in order to avoid disruption.
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on Thursday, May 24, 2018 0


Every Procurement team strives to realize continuous cost reduction. This goal, however, looks more like a dream to most organizations. Dismissing year-over-year cost reduction as unsustainable, they look for quick wins where they can get them. In certain cases, these quick-win cost reduction opportunities are really anything but.

At the start of the fiscal year, many Procurement professionals receive unwelcome news from their downstream direct material suppliers. Prices have gone up. However minuscule, these changes can add up, and Procurement cannot afford to ignore them.

The justifications for these changes run the gamut. Some are direct results of increases to index and material pricing. In these situations, the supplier has no choice but to raise their prices. Other times, the explanation is foggier. "Prices went up," a less scrupulous supplier might say. Whatever the situation, whatever reason your supplier provides for the change, it's important not to let it go unchecked. Procurement should obtain documentation that clearly and accurately explains the rationale behind any price increase.

Trust is an essential aspect of any supplier relationship. Without mutual trust and respect, Procurement departments and their suppliers will struggle to drive savings and establish strategic partnerships. Too much trust, however, and the department can run into even more costly trouble. A surplus of trust could lead your team to look the other way or conduct halfhearted negotiations when an unreasonable price increase comes along. Over time, this can shape supplier behavior and damage long-term cost reduction efforts.

A supplier might announce a price increase and invite you to negotiate. Ultimately, the process will result in a net price increase disguised as "savings." For example, let's say a packaging supplier experiences a 5% increase on the Lower Grade Polyethylene Index. In anticipation of an easy negotiation, they might pass a 10% price increase onto their customers. If the negotiations result in an 8% price increase, the customer can report cost reduction of 2%.

On paper, the supplier has made concessions to Procurement. Better still, Procurement looks to have realized its cost reduction goals. World-class Procurement groups know better than to fall for this facsimile of savings, but countless organizations do not. Many find themselves unwittingly losing money while celebrating their continued cost reduction victories.

Transparency, honesty, and thorough assessments are necessary in every supplier relationship. By avoiding vague and unclear communications, Procurement can better avoid vague and unclear price increases. The department should ask detailed, commodity and service-specific questions that truly require suppliers to engage and open their books. With more actionable insights into the cost drivers behind price increases, Procurement can manage (and mitigate) them in the future. A small extra bit of digging can go a long way in making cost reduction dreams a reality.

Want to learn more about developing strategies for continuous cost reduction? Reach out to the strategic sourcing specialists today.
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on Friday, March 30, 2018 0



The difference between forming a successful relationship with a secondary supplier and having to re-engage the market within a couple of months rests with identifying the core reason for the relationship, the main drivers of the decision process, and following a structured research and selection process to ensure all key criteria are satisfied.

To ensure a mutually beneficial and stable relationship with the secondary supplier they must be able to meet the core needs that prompted the search. The most common reason to seek and develop a secondary source relationship with a supplier is simply to alleviate the risks associated with production interruptions due to complete dependence on one supplier for a portion of the component materials or assembly services. However, manufacturing capabilities can also limit the current supply base and cause shortages in supply where the manufacturer or fabricator is not able to meet volume requirements consistently. This can also include variability in quality.

Another common motivation is the need for more competitive pricing. This can be caused by price fixing by a few large consolidated suppliers in a certain region or moving from research and development volumes to production volumes. Market pricing is also a key factor in evaluating new product introduction options and target pricing.

The research and selection process also needs to be adjusted depending on the type of supplier that's being sought. The most common supplier types can often be separated into raw material manufacturers, distributors, fabricators, and contract manufacturers. Raw materials manufacturers and distributors can include commodity and specialty chemicals, aggregates, and industrial products. Component distributors range from electronic and industrial supplies to PVF and hardware.

These two supplier types are in stark contrast to both fabricators and contract manufacturers. Here, fabricators can include machining operations such as milling and turning, sheet metal stamping and forming, casting, forging, and injection and compression molding as the main categories. While contract manufacturing can include encapsulated electronic manufacturing services such as cable assemblies and printed circuit boards to more complex electro-mechanical and optical sub-assemblies all the way through the manufacture of the complete finished product.

Both the core need for a secondary-supplier and the type of supplier determine the complexity and time frame of the supplier identification process, but can be captured within a five stage process.

The first step in the process is data collection. This includes identifying the regional scope and initiative drivers, collection, review and understanding of the technical needs and specifications, and determination of estimated annual volumes, order preferences, packaging and shipping requirements such as full container loads, and the final destination and frequency of orders.

Once all requirements are clearly scoped out the initial research phase can be undertaken to determine supplier limitations. This is driven by the team's technical subject matter expertise and utilization of internal knowledge bases and partner networks.

With an initial long list in hand each supplier can be contacted individually to determine if they're a good match for the stated need. Often the best approach is to compile a summary of each supplier’s capabilities for ease of comparison. This includes reported annual sales, financial stability, manufacturing facility location, size, and industry focus. An approval of the short list that results is a big part of making sure expectations are reconciled with need and everyone on the team is on the same page.

With a list of vetted suppliers determined, an RFP can be carried out to validate the initial conversations and gather line item pricing. This begins by executing non-disclosure agreements to protect intellectual property and gathering a full bid package of items and detailed product specifications for pricing evaluation. Key drivers include validating financial stability, and manufacturing capability along with equipment lists, partner lists, and secondary operations. Verifying certifications and standard operating practices such as ISO13485, ISO9001, ISO14001, OHSAS 18001, FDA, and ITAR is also important at this phase.

The RFP process continues by gathering and analyzing pricing per line item or product, conducting initial pricing negotiations, and preparing a market summary report for the team.

The final step in the supplier identification and selection process is qualification and contracting to ensure a stable long term relationship. This includes selecting a final set of suppliers based on qualitative capabilities and pricing competitiveness, requesting samples and conducting tests or qualifications, inspection of the manufacturing operations, legal review and finalization of the contract and follow-up quarterly review as part of the relationship management process.
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on Wednesday, March 21, 2018 0



It’s no surprise that one of the key variables in strategic sourcing is the suppliers a company engages with. Understanding and continuously striving to improve the relationships with your company’s suppliers will not only add value to the business, but also provide additional opportunities to implement better strategies going forward. With supplier identification being the starting place for evaluating your company’s options, your team will become aware of which suppliers have the capabilities and quality you’re looking for, and who may be a good fit for your company’s needs in the long-term.

Whether your company is working with newer suppliers or suppliers you have worked with for years, there is always room to enhance the current relationship. Several benefits can come from improving these relationships such as reduced costs, increased efficiency, and improvements in operations. Developing the lines and frequency of communication between your company and the supplier is key in improving the supplier relationship. It ensures that everyone is on the same page and minimizes the risk of having miscommunication, which can lead to saving time and money.

By working closely with the supplier and maintaining a positive working relationship, through good communication, the supplier will be more likely to provide competitive costs. If there is ever an event in which your company feels the need to test the market and see what other suppliers could offer for your business, this can be a true test to see how your supplier feels the relationship is going. Generally, when companies take their business to market, incumbent suppliers who have developed great working relationships with these companies tend to compete and fight for their business. Even if the business does not feel the need to go to market, if both parties are happy with the current relationship, suppliers will be more willing to provide cost reductions and discounts to their customers. Aside from taking your company’s business to market to achieve cost reductions, many suppliers are willing to implement incentives and tiered discount structures to good customers. Keep in mind, these are not the only types of cost reductions available, but working to improve your company’s relationship with its suppliers will unlock doors to savings opportunities.

Receiving cost reductions may be one of the most important aspects of a well-developed supplier relationship, it is not the only benefit of improving the relationship. As companies work closely with their suppliers and get to know each other, there is a better opportunity to identify ways in which both companies can grow together and develop a mutually beneficial relationship. Both parties can create strategies for improving product quality, and continuously improve operations to ensure lean and efficient production. This is key in the relationship because collaborating efforts will lead to better strategies to improve the product and production processes. Developing strategies together will instill a more efficient portion of the supply chain that can lead to greater business opportunities for both the company and the supplier.

Reducing costs, clear communication, and improving operations and efficiency are all great benefits of improving the relationships with your suppliers, however, another benefit to add to the list includes supply stability. Relationships with your suppliers will be most effective if they are built for the long-term and turn into partnerships, rather than ad-hoc relationships. With these relationships continuing to grow, there becomes a steady supply of the goods and services provided by the supplier. With a mutual understanding of the relationship and operations involved, there will be a more consistent effort to develop a more concrete supply of goods and services. This can also minimize any issues with on-time delivery, product shortages, and other supply issues.

As we wrap things up, another very important outcome of developing the relationship with a supplier is the opportunity of supplier consolidation. By working together and improving production and operations, the supplier may be able to supply items that your company currently purchases from another, similar supplier. By consolidating the supply base, your company will be able to achieve greater savings with discounts and cost reductions by giving the supplier additional business that your company had with alternative suppliers. Additionally, your company will receive great products that come from one supplier, as the supplier will most likely be appreciative of the increase in business and devotion to growing the relationship. Consolidating the supply base will also involve consolidating the lines of communication and again, minimizing risks of miscommunication. The consolidation will allow your company to streamline the supply base and implement a much more straightforward supply chain with a few strategic suppliers rather than an abundant amount of suppliers that supply similar products.

With a consistent effort to improve existing relationships with your company’s suppliers, doing business with these suppliers will become much smoother, and in most cases, cheaper. Identifying areas in which your company and the suppliers can work together to develop mutually beneficial strategies will help the businesses grow together for the long-term.
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on Thursday, March 08, 2018 0

Negotiations are one of the most critical stages of the sourcing and procurement process.  Requests for Proposals and Reverse Auctions are essential in understanding market conditions and a supplier’s potential, but the negotiation phase is when a supplier’s true willingness to collaborate and form a partnership presents itself.  There are a plethora of best practices surrounding negotiation preparedness and strategy, all entailing identifying leverage points and coming into the conversation confident and open to compromise.  What these strategies at times fail to address is when to understand that furthering conversations is a waste of resources, and knowing when it is time to enter into an agreement “as is”, or walk away entirely.  The following are common signs that a negotiation has concluded.
1.       The supplier has become unresponsive or slow to provide follow up materials and data.
If a supplier begins to remove themselves from the conversation or is unwilling to continue to provide necessary additional information, they are likely checking out of the conversation.  While they may continue to engage it is important to pay attention to communications and recognize if asks are no longer being escalated to the proper decision makers and are instead just sitting with employees who are unable to drive the conversations forward.


2.       You no longer have value that can be contributed to the agreement.
The negotiation period should focus more on give and take and constructing a mutually beneficial agreement rather than intimidating one party into conceding.  Once the discussions have reached a point where one party is requesting change without concessions to offer in return, it is best to focus on concluding conversations and deciding on next steps.
3.       Results are well below benchmarks or market conditions.
If multiple rounds of negotiations are still falling below expectations based on market data, it is unlikely that goals will be achieved.  Additional savings and value-adds have diminishing returns in a negotiation, so anything further will be incremental at best.  It may be time at this point to explore other options or adjust expectations.


4.       Legal departments have failed to reach an agreement on non-business terms.
Regardless of the success of business term negotiations, if legal terms will put either party at risk it may be time to move on to an alternate option.  If both legal teams are unwilling to budge after initial conversations, it is unlikely that one organization will change policy to concede.  A particularly large or critical agreement may be an exception to this rule.


5.       The category has become too volatile.
If negotiations have been ongoing for quite some time due to changes in purchasing needs, volume projections, or commodity conditions it may be a sign that a more generalized agreement is necessary or contracting should wait until things stabilize.  This is particularly relevant to categories such as packaging which have volumes that vary greatly with company growth, constant design changes, and index prices that fluctuate.  Contracting for items that will be obsolete in a few months does not benefit either party.
Whether the strategy should be to walk away or enter into an agreement depends on the category, goals, and achieved results.  An important item to keep in mind is that collaboration and communication throughout the negotiation process is often indicative of how the relationship will continue under an agreement.  Suppliers who are honest, transparent, and come with innovative solutions are likely to bring value to the organization, whereas suppliers who are stubborn and unwilling to compromise are unlikely to change.  Using the negotiation process as a trial run of a supplier performance review can be an excellent tool to ensure that relationships start off, and remain strong.
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on Monday, December 18, 2017 0


Conducting a sourcing engagement in any category requires a deep consideration of many factors to ensure success.  How many suppliers should be invited? What should be included in scope?  The challenge is striking a balance of covering all critical aspects of the products or services in question without overwhelming the potential supply base or decision makers with a massively scoped and complex project.  In MRO and Packaging categories specifically, this can be a challenge, as the product base is usually high volume and high mix.  Items with complicated specifications and supporting documentation can require many resources to digest and review, overwhelming suppliers with the time and headcount required to accurately and strategically price each item.

Applying a market basket methodology reduces the burden on both the supplier and analysts. The term market basket refers to a representative sample of the products or services included in a particular category.  A common practice in sourcing categories of this nature is to focus the market basket on the items that take up the top 80% of overall spend over a 12 month period.  This removes the low volume items and gives supplies opportunity to focus on the bulk of the spend.  While this is a good starting point, there are additional elements that can be incorporated to increase the coverage of quotations without over-extending supplier resources.

The first is to apply product grouping to the entire category spend and utilize that grouping to negotiate discounts on tail spend products.  For example, in an industrial supplies and hardware category where 280 items make up the top 80% of spend, and 3500 items account for the remaining 20%, utilizing this methodology will prevent those 3500 items from being completely neglected from pricing negotiations.  While only the top 280 items should be priced individually, giving suppliers overall spend figures by category and asking for applicable discounts will further reduce costs outside of the market basket.  If a large portion of tail spend falls under fasteners, power tools, and PVF, then suppliers can focus their higher discounts on those categories and future purchases will receive a standard discount.

Another option is to evaluate remaining items as a subsequent round of negotiations.  This is especially useful in custom categories such as primary packaging, where leveraging total spend is important but each item requires custom pricing.  Utilizing an 80/20 market basket rule runs the risk of a supplier’s capabilities not covering the bottom 20% of items, requiring the use of an additional supplier and making the category more difficult to manage.  Once suppliers perform well in the first round of proposals, they are typically more willing to commit additional resources to quoting more items, and the additional leverage will be useful in further reducing overall cost of ownership.  Prior to event conclusion and transition, you will have full visibility into the total category cost amongst your select supplier(s).

Overall, best practice in sourcing a complex category with a high product mix is to give suppliers opportunity to be engaged and submit initial pricing before requiring the costing of each and every product.  Allowing suppliers to prove themselves as competitive and capable with the top volume market basket reduces the burden on the analyst to have to evaluate thousands of SKUs across each and every invited supplier, and proves to suppliers that they are serious contenders, making them more likely to put their best foot forward. 
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on Thursday, November 30, 2017 0



Part of being in business is being capable and willing to take risks. In a supply chain, risks are seemingly everywhere and some may be relatively simple to address, whereas others may take time to mitigate. While focusing on how to effectively manage the more common risks within a supply chain as they relate to suppliers, there are a few best practices that can be implemented to lessen the potential of risks taking a turn for the worse. The amount and severity of risks greatly depends on the industry in which the business operates. However, the following best practices will assist in managing various risks that remain similar regardless of industry.
When working with suppliers, a great starting point to manage potential risks involves having a contract in place as the relationship between supplier and customer begins. Having an agreement with suppliers will assure both parties that they each have responsibilities for their portion of the business relationship. With an established agreement, both parties can also hold each other accountable for what they agreed on. If no contract is in place, there is a much greater risk related to quality, costs, production and purchasing processes, as well as intellectual property protection that may suffer as a result. Putting agreed upon terms in writing will ensure the supplier and the customer that the other party will perform their due diligence. It will also aid in not only better governing the relationship as business continues, but to mitigate risks in key areas such as costs and quality. Contracts outline payment terms, service levels, among other mutually agreed upon terms and conditions that will decrease the severity of risks associated with production and the final product. However, it is important to note that contracts do not completely alleviate risks within the relationship. They set the terms and conditions for the business relationship and provide information on managing certain risks, however another best practice to manage risks involves keeping the lines of communication clear and frequent.

 In any relationship, communication is key. It is necessary for businesses to communicate regularly with their suppliers and vice versa to ensure that both sides are on the same page. Setting aside a designated time on a weekly or even monthly basis to check in with the other party will maintain a healthy level of communication. These meetings should be used as an open discussion to evaluate production process, identify any risks that may be present on either side, and implement risk mitigation plans. During these meetings, suppliers and customers have the opportunity to discuss any capacity, capability, forecasting or any other concerns that may pose a risk to either business. Keeping an open line of communication allows each party to address issues or risks they see, in addition to collaborating and developing plans to manage these risks moving forward.

Ultimately, maintaining a great relationship between the business and its suppliers will help manage and reduce risks as they relate to the supply chain. Reviewing and agreeing on a contract’s terms and conditions will lay out how the relationship will work and what is expected of the supplier and the customer. Maintaining clear communication with suppliers makes it easier to collaborate, ensure business is being handled as agreed on, and ensure risks are being identified and reduced as soon as possible. Though there are various risks associated with suppliers, these are a few best practices that will play a key role in identifying these risks and managing them to the best of the business’ ability.
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on Wednesday, September 06, 2017 0

I started my journey with Source One at the beginning of the summer as an intern and more recently, I’ve been transitioning into the Project Analyst role as a full-time team member. One of my first projects that I consistently worked on as an intern and continue to work on as an Analyst involves sourcing direct materials such as electronic components and PCBAs for a client with several divisions. The divisions are located throughout the world and after sifting through each division's invoice data, we found that there was an abundant amount of supplier overlap in addition to many smaller suppliers that some divisions only purchase a handful of items from each year. With that being said, we decided that supplier consolidation would be the best strategy to implement to help this client achieve savings.

With any decision, particularly those bigger business decisions, there are benefits and drawbacks associated with implementing the supplier consolidation strategy. Reduced costs is what Source One strives for, and that is the top benefit associated with supplier consolidation. Especially for companies that operate globally, it might be valuable to take a step back and assess the current state of the supply chain. Taking the example of my current project into consideration, many companies work with distributors and OEMs across the world in combination with working with local companies for similar, if not, the same parts. Companies with a similar set up should strongly consider evaluating the potential impact of supplier consolidation in an effort to reduce the costs of similar (or same) parts that they are buying from multiple distributors or manufacturers. Not only are these companies condensing the number of suppliers they buy from, they are consolidating their spend as well.

Shifting all purchases of similar items to a single supplier will not only reduce per unit cost variances and spend overall, but it will add a level of organization to the supply chain, as the company is minimizing their list of current suppliers without jeopardizing their operations. For example, the billing process that is involved with each one of a company’s suppliers can be difficult to manage if many suppliers are involved. By consolidating the list of suppliers where it is applicable can help ease the process and allow the company to have a clearer billing (or other) process. Having a smaller set of suppliers will simplify the process of tracking communication between the company and the supplier, orders, invoices, etc. Consolidating the list of 10 suppliers to 2 or 3 suppliers will keep the billing process and lines of communication straight forward and will lessen the transactional time spent on the ordering process. Overall, it will condense several necessary processes and engagements between the company and the supplier.

Thinking that supplier consolidation may be just what your company needs? Be aware that although supplier consolidation may be a great way to enhance a supply chain, like many things in life, it is not for everyone. There are some drawbacks that come with this strategy; the biggest drawbacks is that many suppliers do not have every single part that a company may be looking for. In cases like this, it can be difficult to condense the list of suppliers if some of the bigger suppliers on the list do not have the ability to supply one key component that a smaller supplier can. If a company works with bigger suppliers that have more flexibility, there is a better chance of finding a “one and done” type of supplier that will allow them to consolidate their list. However, another drawback is that a company now has to work with a larger supplier; in working with a larger supplier, it can be much harder to develop a solid working relationship with them rather than working with a small supplier. Getting the supplier’s commitment to the company they work with can be harder to maintain, which can lead to unresponsiveness and a less-than-ideal experience.

If you made it through reading the more crucial drawbacks of supplier consolidation, then congratulations, you may still be considering the idea for your company! If you’re thinking of diving deeper into the ins and outs of supplier consolidation, check out our website to see how we can further assist you and your company!


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on Thursday, June 29, 2017 0
Revisiting your spend with distributors is often one of the most fertile areas for savings opportunities, and by keeping six key elements in mind success may be close at hand. If we consider electronic component distributors as a test case we can identify the six primary stages to be needs assessment and strategy development, data gathering, data validation and preparation, supplier relationship development, negotiations and contracting, and implementation tracking.

A first step in the process that's often taken for granted is needs assessment and strategy development. During this phase we determine what the primary drivers and metrics for the initiative are. These can be as varied as ultimate cost savings or minimization of supply disruption, but are usually a combination of savings targets and risk mitigation.

To prevent supply disruption both valued incumbent vendors and possible alternates can be approached in order to define primary and secondary suppliers. We aim for a preferred supplier agreement at full annual volumes with SLAs, blanket orders, and quarterly releases or VMI agreements to maximize savings while ensuring consistency of supply.

After all parties are aligned with respect to goals, we can begin gathering the data from the engineering and procurement teams. The key here is to make sure you have all of the necessary information including supplier and manufacturer names, part numbers, descriptions, pricing, and historic annual volumes.

Reviewing the data for inconsistencies and building the market basket can often be one of the most time consuming phases of the overall process. Here, unit of measure issues often occur where components may be purchased in packs, cases, or individually, so each SKU must be converted to unit price each along with the tier the component is ordered on. Since parts tend to change rather quickly in this commodity group, validation of the data set against obsolete components and inclusion of replacements is also needed. To maximize savings while minimizing inventory levels forecast which indicate annual volume needs and determine desired stock levels must also be considered against blanket orders and release schedules.

Once all of the necessary documentation is in place, management of the supplier relationships becomes critical. During the sourcing initiative you must approach the supply base directly, not through online forms or directories. A close relationship with a representative will allow you to ask the supplier to identify generics for passive components and cables along with alternates for obsolescence components. You can also look for off the shelf components to replace comparable custom parts such as power supplies.

Negotiation of best in class pricing with the primary supplier becomes key after conclusion of the sourcing initiative. With the selected finalists you can look for sign-on bonuses and rebates along with tiered discount structure on the overall volume of business.

Perhaps the last phase is often overlooked by separate sourcing teams, but is part of day to day operations for most purchasing teams. Tracking implementation at the facility level is vital to ensuring projected savings are actually achieved. Implementation of tiered based pricing in ERP and electronic purchasing platforms to ensure compliance by buyers is the first step. And, by instituting product and pricing list, monthly reporting becomes possible to enable tracking of purchases from preferred and secondary suppliers.

It may seem overwhelming when considered together, but setting expectations, getting buy-in from all parties, and approaching each one of the six sourcing areas individually can achieve the greatest sustainable savings while simultaneously resolving supply chain bottle necks.
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on Monday, April 24, 2017 0
How to streamline manufacturing for continuous cost reduction
As a manufacturer becomes more familiar with a specific organization's product overtime, they learn unique efficiencies and can reduce the time of production by streamlining manufacturing. By reducing the time the supplier dedicates to manufacturing the product, the client can receive savings in labor and overhead costs, an opportunity for cost reduction that many organizations do not take advantage of.

These can be achieved through a joint effort between the supplier, OEM and customer by realizing mutual savings within their existing process. For example, the customer can fund equipment for the manufacturer to streamline manufacturing, maybe a specific machine that assists with optimizing the assembly process. When the supplier can be more efficient in diminishing labor and overhead costs to achieve savings with support from the customer, cost savings can be passed on to the client for a greater ROI overtime. Essentially, a strategic capital investment can reduce the total cost of ownership of the product being sold.

Previously in the Continuous Cost Reduction segment for Source One's Countdown to ISM2017 series, Source One Consultant Ken Ballard explained how to achieve transparency and leverage economies of scale. Utilizing both of these methods can help your organization earn additional savings without changing supplier or sacrificing quality, and Ballard explains in this next episode how streamlining manufacturing also offers similar opportunities. The Source One Countdown to ISM2017 series offers insights from procurement and supply chain professionals as we look forward to the Institute of Supply Management's annual conference next month. ISM2017 welcomes supply chain professionals from around the world to join together for four days in beautiful Orlando, Florida to collaborate, learn, and advance as experts in the industry. ISM2017 also features sub-conference ExecIn, exclusively hosted by Source One. ExecIn welcomes decision making, high level procurement professionals that attend ISM2017 with their teams to attend sessions designed for these executives that act as decision makers in their enterprises.
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on Wednesday, April 19, 2017 0
Q&A with Martin Przeworski on Product Lifecycle Management
"Go and buy the materials."
That is often the command from other departments to strategic sourcing and procurement (SS&P) groups. Often later in the product lifecycle, SS&P is brought in to help acquire the goods and services needed to enter the market or worse, sought to reduce costs while the product meets it's maturity in the market and consumer demand for it has decreased.

Sure, SS&P is happy to help it's stakeholders find the most competitive prices for the needed products and services. However, this reactive approach can limit SS&P's impact. In reality, when collaborated earlier in the product lifecycle SS&P can optimize cost targets and even deliver a better view of the market landscape. This added value SS&P provides when consulted earlier in the product lifecycle is the topic of Source One's latest whitepaper,  Strategic Sourcing Throughout the Product Lifecycle.

As one of the main contributors to the piece, Source One Consultant and Direct Materials sourcing expert, Martin Przeworski elaborates on the concepts behind the white paper and his sourcing experiences that led to the white paper development in a Q&A podcast session. Przeworski shares how his background in engineering and previous experiences as an applications engineer allow him to take a unique approach to supporting clients when sourcing raw materials for their products. With his efforts to bridge the gap between engineering and procurement teams,  a common ground is developed that allows for more efficient processes and additional savings.

Read the full interview below to find out how Przeworski works to bridge the gap between engineering and procurement teams and find a common ground that allows for more efficient processes and additional savings.

Can you start off by giving us a little more background on what you do at Source One and what it is that inspired the whitepaper?

 Przeworski: My education is in science and engineering with 5 years working in the industry as an applications engineer before making the transition to procurement consulting and joining Source One, where I've helped clients with strategic sourcing in the directs and indirects areas for the past 3 years. I believe my experience gives me a first hand insight into the daily pain points and bottle necks encountered by engineers and the pressures management faces to stay competitive within the market. I've worked hard to bridge the gaps between engineering, management, sales and marketing on technical projects to dissipate miscommunication and misconceptions and help everyone find common ground in order to make progress and achieve savings.

You mentioned that there's opportunity for better results when strategic sourcing teams are engaged earlier in the process. When is the sourcing team usually involved in the product lifecycle?

Przeworski: Strategic sourcing is usually involved as a somewhat 'necessary evil' during the manufacturing phase, or growth and maturity stages of the product's lifecycle to reduce costs as production volumes increase. In the classic analogy - if we can save 10 cents on a capacitor, we can save $10,000 on the production run of 100k units. Strategic Sourcing may also get involved to help reduce the overall costs of an established product by partnering with a contract manufacturer and opening-up the company's time for New Product Introduction (NPI) and development work. Some companies even progress to the point of taking the burden of manufacturing off their shoulders completely and recast the business as a design house.

But Strategic Sourcing and Procurement can achieve even greater savings by expanding on existing component opportunities to include the Engineering team's insights into critical and non-critical component selection, and leveraging DFM services provided by fabricators to reduce component count and increase production efficiencies in order to more than double original projections in most cases.

We often see that as procurement professionals - that for many organizations procurement groups are a 'necessary evil' that they're not initially inclined to engage. How have you approached strategic sourcing for clients?

Przeworski: Yeah, unfortunately procurement can often be viewed as an added obstacle to the sourcing process. But the reality is, they're driving added value by providing a clear view of the market landscape when it comes time to make a major purchasing decision - especially early on. By getting involved in and even leading key activities throughout the product lifecycle instead of simply being asked to 'go and buy the materials', Strategic Sourcing and Procurement can facilitate the process and add value for all key stakeholders. By bridging the gap in understanding between engineering, manufacturing, marketing/sales, and the management teams - and speaking a common language - Strategic Sourcing can  help shorten the development time frame and meet cost targets to make the design of a quality product in a competitive market a repeatable reality.

When it comes to meeting cost targets, it absolutely makes sense that sourcing would be involved prior to the manufacturing phase, but can the sourcing team actually help during the Ideation Phase?

 Przeworski: Yes, during the Ideation Phase the product is conceived, and where many costs are built into the product before it even exists in physical form. When establishing the Market Need, a thorough understanding of the competitive landscape and market pricing can provide key guidance for product placement and feasible manufacturing cost targets.  This is the value Strategic Sourcing and Procurement can bring - enabling manufacturers to understand the market for material/functional design considerations, evaluate their current contract engineering relationships and determine the best approach to balance costs with technical considerations.

And, when should suppliers be involved in the PLC?

Przeworski: The production phase is an ideal time to gather input from key suppliers. In this phase, the product's construction and components parts are established, typically by engineering with little to no input from Strategic Sourcing and Procurement.But during this phase, Strategic Sourcing and Procurement should be engaged to begin supplier identification, identify opportunities to localize designs to low cost regions, and guide the Engineering teams through the off-the-shelf (OTS) commercial offerings to ensure a cost-competitive and sustainable initial design. By utilizing the experiences and insights of manufacturers who have already successfully addressed these changes with similar customers (and are more than willing to share their knowledge to expand their business opportunities), SS&P can take the heavy burden of 'getting everything right' off the engineering team.

To hear the entire conversation, check out Source One's YouTube channel. For more information on how Strategic Sourcing and Procurement groups can deliver at each stage in the product lifecycle, check out Source One's most recent whitepaper: Strategic Sourcing Throughout the Product Lifecycle: Balancing Competitive Costs with Innovation and Speed to Market.
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