Take a Strategic Approach to Sourcing & Supplier Relationship Management (SRM)
In a previous blog post: ‘What is your Strategy to Improve Profitability?’, we introduced how Spend Control and eProcurement is proven to be one of the easiest and fastest ways to reduce excess costs.
In this article, we look at how taking a strategic approach to Sourcing and Supplier Relationship Management provides opportunities for P&L cost savings. Sourcing allows for competitive bidding to ensure optimal pricing and supplier selection on a wide range of spend categories. Supplier Relationship Management (SRM) is the process of evaluating, monitoring and classifying suppliers for performance, capability and risk and effectively managing the relationships on an ongoing basis. The combination results in very large savings and mitigation of risk when compared to traditional processes.
- Uncoordinated spend: Where a reactive/tactical approach is taken and there are no contracts in place, organisations can begin sourcing to ensure competitive pricing
- Targeted supplier selection: Encouraging competition by engaging new suppliers with SRM can create a more competitive negotiating environment
- Demand management: Without aggregating demand across business units, regions and categories, organisations lose benefit from their potential volume and price leverage
- Supplier consolidation: In categories, where companies use multiple suppliers there may be opportunities to consolidate suppliers to get better pricing and terms
- Supplier management: In high risk categories, where companies use a single supplier, it may be necessary to engage more suppliers to eliminate risk of supply exposure
- Rationalising specifications: By developing processes that clearly define the need before translating into a specification, organisations can avoid unnecessary cost and duplication
- Supplier risk reduction: Exposure to supply disruption can increase cost, reduce bargaining power and even influence poor supplier selection to correct the imbalance
- Substitute goods and services: Across business units and geographies, duplicate goods and services are sourced when there is a lack of visibility of spend
- Robust, repeatable and transparent process: Offline and organised methods lead to missed opportunities in negotiated contracts with suppliers and ineffective localised decision making
- Payment terms: By negotiating the conditions in which a seller will complete a sale, an organisation can improve its cash flow position and opportunities for collaboration with other organisations