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Improve Supplier and Purchasing Management and Reduce your Spend

Updated: Dec 21, 2018





Introduction

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.


The Environment

For organisations of a certain size it is common to have the following:

  1. You have many Suppliers

  2. You purchase from many of your Sites

  3. You purchase many Products

  4. You spend a lot of money


Given you spend across multiple sites, you may have some of the following situations:

  1. You have no aggregated Spend Analysis across all sites by Supplier and Products

  2. 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

  3. 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

  4. You have not Analysed the variations between lowest price and average price per product and what this means in terms of controlled spend opportunity

  5. 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


Thoughts:

  1. If you modelled paying the lowest price all the time, what would have been your overall spend?

  2. If you could inform your supplier what the national overall spend forecast would be by product, what better pricing could you obtain?

  3. 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

  4. 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

  5. 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

Analysis Phase:

  1. Using Business Intelligence, centralise and transform all the data so it can be analysed together

  2. Categorise and Filter by Type (e.g. separate Truck Parts spend from Stationery)

  3. 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

  4. 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

  5. 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:

  1. 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

  2. Discuss data sharing - this could make internal staff processes more efficient for suppliers and yourself


System Phase:

  1. 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

  2. Organise an electronic feed of all product and prices from suppliers - Your system should validate the price against the agreement records

  3. 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: stuart@4gm.com.au.

Stuart Popplewell

4GM Managing Director

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