Updated: Dec 21, 2018
In relation to Suppliers and Purchasing Management, I have seen opportunities to make significant reduction in spend. I will outline a typical environment as well as a suggested approach to improve.
For organisations of a certain size it is common to have the following:
You have many Suppliers
You purchase from many of your Sites
You purchase many Products
You spend a lot of money
Given you spend across multiple sites, you may have some of the following situations:
You have no aggregated Spend Analysis across all sites by Supplier and Products
Because you have not got easy visibility to above, you have not been able to enter into strong National supplier negotiations around expected spend and discounts
Your product and price agreements with suppliers may be loose and not controlled appropriately i.e. are your systems ensuring you are getting what you agreed
You have not Analysed the variations between lowest price and average price per product and what this means in terms of controlled spend opportunity
You have not discussed with main suppliers what can be done to make supply chain process more efficient for each other and improve supply chain costs
If you modelled paying the lowest price all the time, what would have been your overall spend?
If you could inform your supplier what the national overall spend forecast would be by product, what better pricing could you obtain?
What else could you do to help your supplier reduce their supply chain costs and what further discount would this result in? e.g. Payment Terms, electronic data sharing such as electronic ordering, etc
The above point could extend into what supply chain improvements can help your business e.g. Electronic data sharing may result in more efficient internal AP processes
But you have hundreds of suppliers and thousands of products, surely the above is a huge unmanageable task. It is not, you need to think 80-20, see our approach below
The Improvement Approach
Using Business Intelligence, centralise and transform all the data so it can be analysed together
Categorise and Filter by Type (e.g. separate Truck Parts spend from Stationery)
Within the top type(s), analyse and identify the 80-20 rules for Suppliers i.e. You may spend over 80% on only 5% of your suppliers - these will be your focus for improvement discussions
Within the top Suppliers list, analyse and identify using the 80-20 rule the top products (and categories) that have the greatest spend - these are your focus products for Supplier agreements
Analyse current variation (min v's average) in unit price per product and model overall spend on minimum price you paid - This gives you a starting point on size of opportunity
Supplier Agreements Phase:
You can now start volume and price discussions with Suppliers with focus and great insight. You will even be able to model exactly what the forecast cost savings are with any agreements you are discussing
Discuss data sharing - this could make internal staff processes more efficient for suppliers and yourself
You need a system to store the agreements you have now in place with your suppliers e.g. Product A is now $1.15 for the next 12 months starting on date 1/7/2018
Organise an electronic feed of all product and prices from suppliers - Your system should validate the price against the agreement records
Every Invoice you receive should be validated against agreement records
The above will ensure you are identifying and focusing on the areas that have the greatest impact to purchasing performance. The system changes suggested above ensure you capitalise on the focus areas.
Please feel comfortable to share your challenges with me. My e-mail is: email@example.com.
4GM Managing Director