Learn more - Sourcing

Being able to change the game starts from spend management foundations, that should be strong enough to do more than just surviving through individual negotiations and call-offs. Processes should be efficient enough to leave time buffers to do more than just make it through acute responsibilities. Ways-of-working should be repeatable enough to enable targeted changes and doing again the things that work well. Competences should be built to support fact-based and value-focused collaboration with suppliers instead just staring at purchase unit costs.

All too often Sourcing is simply tasked to minimize purchase unit costs. Assigning Sourcing’s business need this narrowly causes problems in two ways. Firstly, it encourages minimizing unit costs in a way that hurts the company more than it helps, e.g. via buying more than needed to get volume discounts, or accepting long lead-times that tie cash to inventories and makes the company slow to react to surprises. Secondly, it misses benefitting from the other ways the suppliers can be valuable to the buying company, e.g. via fast responses, reliable supply or an attractive technology roadmap.

Suppliers are frequently managed as a pool of more or less independent suppliers, instead of managing them as supplier portfolio where different suppliers have different and well-defined roles and they are managed differently towards different goals. By managing suppliers as a connected portfolio instead of a pool of individual suppliers is the single most powerful ways to rig the game and make it easier to later in negotiation phase to reach results that would otherwise be impossible.

Frequently the opportunity to adjust the business model with suppliers is left as an after-thought, or it is simply “we place purchase order, you deliver according to it”. Developing a good business model with suppliers is the second most powerful way to rig the game and pave the way to better negotiation results later on. A good business model can help navigate surprises and make business extremely attractive to suppliers with radically lower margins and prices.

When the game is set, suppliers selected and business model agreed there are still risks of dropping the ball. In negotiation preparations it is critical to avoid being forced to buy from suppliers even if their offer is not good enough. This can be done via back-end collaboration, coordination across negotiations and communication with suppliers.

Ultimately, when supplier relationships deepen, further opportunities to improve the business for both are possible by mutually developing offerings and operative practices.