Selecting Suppliers That Provide the Best Price & Overall Value

Charlotte Sutton
Charlotte Sutton,
The most essential function of any Procurement team is to guide the organisation through the process of selecting the right suppliers. 
That includes selection of the best suppliers for frequently purchased categories, as well as for high-ticket items such as capital equipment and major outside services. Whether it be a ‘strategic sourcing’ event or a ‘spot sourcing’ event, every sourcing event is an opportunity to save money, mitigate risk, and obtain the best possible overall value. 
Is your Procurement team involved when it should be and able to perform this critical function effectively?     
First, let’s look at the business impact and why it’s important to ensure Procurement are involved?
  • You want the best possible value for all your purchases: For high-spend categories and major purchases, you want to do everything you can to get the best combination of price, service and quality (i.e. lowest total cost). Part of making sure you get best value is to have an appropriate form of competitive selection process that encourages suppliers to make their best possible offer.   
  • You want “success” with your purchases: Realising ultimate success with your purchases requires a combination of two key elements: 1) clearly defined and communicated requirements, and 2) procurement skills that incorporate knowledge about the supplier base, current market conditions, and your organisation’s purchasing power. That combination requires operating departments, technical experts and procurement professionals to work together on important supplier selections.    
  • You want consistency and transparency: If anyone within or outside your organisation should ever call into question why a certain supplier was selected, you want to know that a consistent, documented process was followed; a process that was objective and fair. You want easy Sarbanes Oxley (SOX) audits. And certainly, you want to avoid any possibility of fraud.
So, how well are you performing? Here are some key indicators to look out for.
  • Procurement involvement: Is procurement involved in all major purchases and supplier selections? Are appropriate competitive events used, such as formal RFx/tender processes, reverse auctions, etc.?
  • User and expert involvement: Are the people most qualified to define requirements and selection criteria always involved? This may include the person or department requesting the purchase as well as subject matter experts such as IT, legal, and commodity specialists. How is information collected from them? How well is it communicated to potential suppliers?
  • Consistency: Are similar sourcing events always done in the same way? Are selection criteria clear and as objective as possible? Can you go back to agreements or contracts awarded a year ago and see the process that was followed?
In order to improve, you should look to…
  • Establish or enhance sourcing policies: Clearly identify criteria for when purchases should be put through a competitive process; communicate procurement policies throughout the organisation and put in place controls to ensure policies are complied with.
  • Document standard sourcing processes: Research internal and external best practices to define the process your organisation should follow for various types of sourcing situations (e.g. capital equipment, service provider, development partner, etc.). Outline the basic method, along with the key steps, people, and documents required. Give your procurement team the responsibility and authority to ensure the proper process is always followed.  
  • Consider cross-functional and cross-organisational sourcing teams: Many organisations are establishing virtual ‘centre of expertise’ or commodity teams that cross over functional and/or organisational boundaries to act as the subject matter experts for various categories of purchases. Such teams bring together the best knowledge and experience from throughout the organisation and combine them with professional procurement skills for all important sourcing activities.     
Find out how a good procurement system can help you with these capabilities – download our white paper, How Finance and Procurement Can Join Forces to Drive Significant Savings
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