Hi LeanLinking fam. Here's the latest updates in RELATIONS:

- Dropdown menus in the Master Data Overview page to ensure consistent inputs.
- Contacts roll up to Parent level, allowing the use of Child-level contacts in meeting minutes and relationships.
- New LeanLinking logo.
- Auto-generated profile pictures to help identify different users.
- Expiry dates highlighted on Compliance pages for easier identification of expired registrations.
- Notification settings separated from the user profile.
- Supplier Master Data pages aligned for a consistent format across the solution.

LeanLinking is excited to reveal its new visual identity, marking a key step in a broader strategic transformation. Under the new leadership of CEO Nicolai SchouJensen, the company is embracing a significant modernization that aims to define its future growth and development. The refreshed identity highlights LeanLinkings’s ambition to enhance its role as an innovative leader in SaaS solutions for procurement professionals.

The updated identity, featuring a new logo and colour palette, signals LeanLinking’s move towards a more unified and forward-thinking strategy. This change supports the company’s aim to deliver cutting-edge, value-driven solutions while grounding itself in both existing and new core values within the LeanLinking team.

“The transformation at LeanLinking is about more than just a new look; it’s about aligning our products with our team’s shared vision, mission, and values,”

said Nicolai Jensen, CEO of LeanLinking.

“With this new identity, we’re not just refreshing our image but also reaffirming our commitment to creating ongoing value for our customers, employees, and partners.”

Helena Futtrup, Marketing Manager at LeanLinking, added:

“Creating a new brand identity for an established SaaS company like ours has been a thrilling challenge. I’ve wanted to honor our company’s history while also looking ahead. The new visual profile reflects the dynamic and innovative spirit that drives us and is designed to connect with the modern technology we provide to both current and future customers.”

LeanLinking will showcase its new visual identity at upcoming conferences in London at the Procurement& Supply Chain LIVE conference and at Digital Procurement World in Amsterdam this autumn.

Here's a handy list of our latest updates to the LeanLinking RELATIONS platform!

Latest Updates:
- New User Sign-Up flow to streamline the onboarding process.
- Actions UI improved on the homepage.
- Time- and Date formats updated to be consistent and more easily readable.
- Survey introduction text is now included in the recipients' invitation email.
- Filter buttons moved to new location on NCR-, Compliance-, and Action Overview pages.

In June we released the integration with Owler's Supplier Insights.

Clients can now access company info, news feeds, and competitor insights from the Summary tab on Supplier Profile pages, simply by adding in the supplier's website address.

Websites can be added from the Supplier Profile, from the Master Data Overview, or bulk-uploaded via Excel.

As part of an ongoing project to improve the user experience on the Relations product we’ve released the first round of enhancements in May. The first time around we’re focusing on simplifying UI elements based on user feedback, so we are excited to present a more visually compelling user experience.

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Latest updates include:

• Headlines added to all pages for easier navigation.
• Date range pickers removed from several overviews.
• Small UI changes for Visibility and Notifications in Compliance.
• PDF Export added to Supplier Profile Summary page.
• Supplier Profile is now a full screen window to allow for more information to be shown.
• Removed Cancel button from most windows as the top right X icon does the same.
• Account and Support icons moved to top menu.
• User Activity Log removed due to inactivity

LeanLinking today announced the appointment of Nicolai Schou Jensen as its new Chief Executive Officer. Nicolai will replace LeanLinking Founder Lars Kissow Kuch Pedersen, who will step down as CEO and continue as Chairman of the Board replacing Jesper Kuch Flod Pedersen.

Aarhus, Denmark – August 10th 2023 - LeanLinking today announces the appointment of Nicolai Schou Jensen as its new CEO to replace Founder Lars Kissow Kuch Pedersen, who after 10 years as CEO will step down and continue as an active Chairman of the Board in LeanLinking.

Nicolai Schou Jensen is a tech business leader with an excellent track record across multiple tech companies in the B2B space. Nicolai brings extensive experience, having worked previously in several commercial positions latest as VP Sales at B2B SaaS company Plecto and before this as Director of the Copenhagen office for software development company IT Minds.

LeanLinking’s new Chairman Lars Kissow Kuch Pedersen said: “We are delighted to welcome Nicolai as our new Chief Executive. Nicolai is a dynamic, commercial and value-driven tech leader who has an excellent track record of delivery in an international B2B SaaS company. He has exceptional commercial capabilities, proven operational effectiveness, and strong experience in both Europe and America. The Board looks forward to Nicolai realising the full potential of LeanLinking as a winning business, which delivers long-term growth and value for all its stakeholders.”

“I would also like to take this opportunity to thank Jesper for his excellent leadership of the board and cooperation over the past 10 years.”

Nicolai said: “I am delighted to have been appointed to lead LeanLinking. It is a business with impressive client brands, strong solutions, a talented team and an incredible potential. Over the past months I have only become more convinced by the strength of LeanLinking’s fundamentals and its clear growth potential. I will be very focused on working with the LeanLinking team to deliver growth, as we serve the thousands of users of our solutions around the world.”

About LeanLinking

Leanlinking offers the World’s best Supplier Relations & Negotiation Management solutions that harness the power of insight with all-in-one solutions. Our vision is to transform supplier relationships & negotiation management to help you capitalize on the enormous value-creation potential in procurement and supply chain. LeanLinking provides both Supplier Relations & Negotiation Management solutions that enables medium and large organizations to harness the power of insight with these solutions.

Negotiations between buyers and suppliers of goods and services is an essential part of any business. Both parties typically strive to secure the best outcomes for the respective businesses. The approach taken during the procurement negotiation process can have a significant impact on the final outcome.  

One of the most critical decisions a negotiator can make is deciding whether to focus their procurement negotiation strategy to achieve the best possible outcome on the use of tactics and posturing or to put the spotlight on preparing a solid fact base with compelling arguments.

What is "Tactics and Posturing" in procurement negotiations?

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Negotiation Tactics and posturing involve using various techniques to influence the other party's behavior and emotions to achieve a favorable outcome. These techniques can create tension and pressure in the negotiation and may lead to a sense of urgency for the other party to accept the terms offered. While tactics and posturing can be effective in certain situations, they also have several drawbacks. These procurement negotiation tactics can create a negative atmosphere, causing the other party to become defensive and resistant. They may also create a feeling of mistrust and damage the relationship between the parties.

And what do you mean by "Preparing a solid fact base"?

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Preparing a fact base with compelling arguments to convince the other side involves gathering information and developing a well-structured argument to support the procurement negotiation position. This approach relies on presenting data and facts to support a logical and rational argument, focusing on the underlying interests and goals of both parties.  

This approach has several advantages in procurement negotiations. Firstly, it creates a positive atmosphere by encouraging open communication and transparency. By presenting a logical and factual argument, it can build credibility and trust between the parties, leading to a win-win negotiation outcome. Secondly, it encourages collaboration and finding common ground by focusing on the underlying interests and goals of both parties. This approach leads to creative and innovative solutions that can benefit both parties in the long run.

Now, how do I best prepare a fact base for my negotiation?

To prepare for a procurement negotiation, it is essential to understand the dynamics of the negotiation and the other party's position. When the buyer has significantly less power than the supplier, such as in a single-sourced situation or oligopolistic market structure, it can be challenging to achieve a favorable negotiation outcome. However, with proper preparation, it is possible to succeed in such negotiations in purchasing. Before the negotiation, the buyer should gather as much information as possible about the supplier, their products or services, and the market.  

This information should be used to develop a fact base to support the negotiation position. The buyer should also assess the other party's strengths and weaknesses and develop a strategy to address them.  

Here are few exemplary analyses to get you started on creating a compelling fact base for your procurement negotiation position:

1. Spend Development

By analyzing the spend data over the past three years, you can identify any trends in the relationship between your company and the supplier. This analysis will allow you to understand the type of account you represent for your supplier and, maybe even more crucially, for the supplier’s account manager. For example, if you notice that your company's spend with the supplier has increased significantly over the past year, you can use this information to negotiate better pricing on the grounds of reduced managerial cost of handling your account and broader allocation of overhead cost to more units bought by you.

2. Share of wallet

This analysis involves understanding your company's spend with the supplier as a portion of the supplier's total revenue. By understanding your company's share of wallet, you can determine the importance of your company to the supplier and use this information to negotiate better pricing or terms.  

3. Profitability Comparison

By analyzing the supplier's profitability, you can identify any areas where the supplier may be able to offer concessions or pricing reductions. This analysis involves comparing the supplier's profitability to your company's profitability to identify any areas of inefficiency or cost savings that can be addressed in the negotiation.

4. Market Dynamics

This analysis involves understanding the competitive landscape in which the supplier operates. By understanding the market dynamics, you can determine the bargaining power of your company and the supplier and use this information to negotiate better pricing or terms. For example, if you find that the supplier operates in a highly competitive market, you can use this information to negotiate better pricing or terms.

5. Supplier Production Costs

By understanding the supplier's production costs, you can identify any areas where the supplier may be able to offer concessions or pricing reductions and use these facts for a better negotiation outcome. In particular, you may want to look out for changes to raw material prices or labour rates by monitoring underlying indices and linking those to supplier price developments.

6. Supplier Performance

Use supplier performance data to identify areas for improvement:. Analyzing supplier performance data can help you identify areas where the supplier is underperforming, such as delivery times or product quality. By highlighting these areas, you can negotiate better terms or pricing by demonstrating that the supplier needs to make improvements in order to maintain the relationship.

So, what do I do if the other party resorts to "unfair" tactics and posturing?

During procurement negotiations, it is essential to remain calm and composed and to focus on the underlying interests and goals of both parties. The buyer should present a fact-based argument to support their position, highlighting the benefits to both parties. The buyer should also be prepared to listen to the other party's concerns and interests and be open to finding common ground.

When the other party uses tactics and posturing, the buyer should remain calm and focused on their objectives. They should not allow themselves to be drawn into an argument or be pressured into making concessions that are not in their best interests. Instead, the buyer should maintain a firm but respectful position, backed up by a fact-based argument.

In situations where the buyer has significantly less power than the supplier, it is essential to be creative and innovative in finding solutions that benefit both parties. The buyer may need to consider alternative solutions, such as developing a long-term relationship with the supplier or partnering with other buyers to increase their bargaining power.

In conclusion

The approach taken during a procurement negotiation can have a significant impact on the final outcome. While negotiation tactics and posturing can be effective in certain situations that are focused on short-term gains sacrificing longer-term opportunities, preparing a fact base with arguments to convince the other side is generally considered more effective for achieving an excellent negotiation result.  

This approach creates a positive atmosphere, encourages collaboration, and leads to win-win negotiation outcomes. When the buyer has significantly less power than the supplier, proper preparation is essential to succeed in the negotiation. The buyer should gather as much information as possible, assess the other party's strengths and weaknesses, and develop a fact-based argument to support their position. By remaining calm and collected, you can make compelling arguments that are difficult for the other party to dispute.

We also recommend you read our Negotiations handbook, to dive deeper into the procurement negotiations process and how to achieve the outcomes you desire.

Negotiation is a critical aspect of procurement and supplier management, and setting targets is an essential element in ensuring a successful outcome. Without targets and goals, negotiations can become aimless, leading to missed opportunities, unsatisfactory agreements, and lost value.

In this article, we will explore why it is important to set targets for a negotiation and how to do it effectively.

How setting targets in negotiations help you achieve your goals?

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Focuses the Negotiation

Targets provide a clear focus for the negotiation. Setting targets helps to establish clear expectations and boundaries, ensuring that both parties are aware of what is achievable and what is not. It also helps with internally aligning with stakeholders and to manage aspirations and expectations. This helps to prevent any misunderstandings that can occur during the negotiation process, and it ensures that the parties involved stay on track.

Increases Preparation

Setting targets presents a perfect opportunity to conduct research and gather information about the negotiation. This information gathering process is crucial in enabling you to identify the key issues that are likely to arise during the supplier negotiation. This preparation not only increases the knowledge and understanding of the issues involved, but it also enables you to anticipate the counterparty’s positions and interests. This knowledge will ultimately enable you to make more informed decisions during the negotiation.

Provides a Benchmark

Targets also provide a yardstick to measure your negotiation success. By establishing a clear target, you can measure the progress of the negotiation and determine whether you are on track to achieve your negotiation goals. This benchmarking process is essential, as it provides a basis for making adjustments during the negotiation, ensuring you remain on track to achieve your objectives.

Maximizes Value

Setting targets is also critical in maximizing value. By setting clear targets, you can identify the most important issues to address during the negotiation and prioritize your discussion around the elements that drive most value for you and for your counterparty. By maximizing the value of the agreement, both parties can come away from the negotiation feeling satisfied with the outcome.

Reduces Risk

Finally, setting targets in negotiations helps to reduce risk. By establishing clear targets, both parties can identify potential risks and develop contingency plans to mitigate them. This risk assessment process is critical, as it enables both parties to identify potential issues before they arise. By having a clear understanding of the risks involved, both parties can take steps to reduce the likelihood of these risks occurring and prepare for them if they do.

Setting targets is critical in ensuring a successful negotiation. By setting clear targets, both parties can establish a clear path forward, ensuring that the negotiation is productive and that both parties achieve their negotiation goals. As such, setting targets should be an essential component of any negotiation strategy.

Here are some key considerations when setting negotiation targets:

Understand Your Objectives

Before setting targets, it is essential to have a clear understanding of your objectives. Ask yourself what you want to achieve from the negotiation, and ensure that your targets align with these objectives. It is also important to consider your stakeholder’s priorities, as this will help you determine which issues are most important to address during the negotiation. Try the frameworks such as RACQSI model to understand how your business partner thinks about the value your supplier is delivering; this will help you understand objectives, priorities, and targeted negotiation outcomes.

Conduct Research

Conducting research is critical in ensuring that your targets are realistic and achievable. Gather information about the other party's interests, needs, and priorities, as well as any relevant market or industry data. This research will enable you to identify potential areas of agreement, as well as any potential obstacles to reaching an agreement. In particular, look for data on your counterparty concerning their financial health, business success, risk exposure, and others.  

Set Realistic Targets

Setting realistic targets is essential to the success of any negotiation. Ensure that your targets are achievable, based on the information and research you have conducted. It is also important to consider any external factors that may impact the negotiation, such as market conditions or regulatory issues. Key analyses to perform are looking into “Share of Wallet,” i.e. your spend with the supplier as a ratio of the supplier’s total revenue, to understand your importance for the vendor; profitability development of the supplier over the last three years; and key competitors of your supplier to understand relative positioning. You may also want to read the supplier’s earnings briefings and annual reports to better understand their priorities and risk exposure.  

Be Flexible

Finally, it is important to be flexible when setting targets. Negotiations are dynamic, and unexpected issues can arise. As such, it is important to be prepared to adjust your targets if necessary. This flexibility will enable you to adapt to changing circumstances and find mutually beneficial solutions. As Mike Tyson said, „Any plan is good until you are punched in the mouth.” Adjust your target sets and your priorities flexibly when you learn new information during your negotiation process.

Setting good targets is critical to the success of any negotiation. By understanding your objectives, conducting research, setting realistic targets, and being flexible, you can ensure that your negotiation is productive and that you achieve your negotiation goals. By following these key considerations, you can set targets that are effective, achievable, and aligned with your overall objectives.

We also recommend checking out our blog about 5 Key Steps Of Supplier Negotiation Excellence to consolidate your negoitation process.

Procurement professionals have a major impact on the success of an organization. One of the most important levers are supplier negotiations. However, procurement is a stepchild in terms of technology investments. Technology budgets for sales are usually 10 times the size of procurement budgets.

Technological advancements have transformed the way businesses operate because they can help streamline procurement processes, improve supplier management, and facilitate better negotiation outcomes. Supplier negotiations are no exception. Most if not all of them are done “manually” without leveraging technology. Procurement leaders must catch up. There are many solutions available in the market. They  have a great ROI and boost performance immediately.

“CPOs now work at the center of the organization, helping to drive its technology and transformation goals.” ― GEP-ProcureCon: CPO study 2022

Where can technology create the most value for supplier negotiations?

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There are a lot of solutions out there and the market is growing. Procurement leaders have to prioritize. They should start with 2-3 solutions which are most suited for their organization and address key pain points. This might be availability of supplier intelligence or training and preparation. We see four main areas where technology can create value for supplier negotiations:

Collaboration and Communication Platforms

Collaboration and communication platforms such as MS Teams, Zoom, and Google Hang Out. They are essential tools to facilitate virtual negotiations, save time, resources, and reduce the number of physical meetings.

Information Platforms and Portals

Information platforms and portals to search for suppliers or market information and benchmarks, which can provide procurement teams with intensive information to make informed decisions. For example, supplier profiles, supplier news, raw material indices, and benchmark of labour costs and rates. Beroe and Craft are two examples of providers which create supplier profiles.

Analytical Tools

Analytical tools which help to analyse and summarize key information for your negotiations. This includes analytical tools on spending such as data warehouses and BI tools, cost analytical tools, digital supplier negotiation days, etc.

Using these tools will help procurement teams to identify cost-saving opportunities, track spending trends, and analyze supplier performance. All this data can then be used during negotiations to achieve better terms and outcomes.

AI-Enabled Negotiation Tools

AI-enabled negotiation tools, which help to prepare and execute negotiations, like LeanLinking’s DEALS solution. They cover five main functionalities:

• Expertise-enabled workflow with real-time guidance in preparation and execution of the negotiations
• Generation of fact sheets with analytics and insights automation. This might include the integration of other analytics solutions
• Benchmarking and guided target setting
• Negotiation academy with best practice toolbox and knowledge repositories (e.g., LavenirAi)
• Orchestrated stakeholder engagement and feedback

AI enabled negotiation tools are the key to unlocking opportunities in procurement. They boost efficiency and effectiveness of the negotiators, enabling them to conduct more negotiations in a shorter time, with improved preparation and a better outcome.

Impact of leveraging a negotiation management platform to execute a cost reduction programm:

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This is a great investment to boost the morale of your negotiators. It will keep your most gifted negotiators in the organization. Good negotiators are hard to find and can command a salary premium. Maximizing productivity of top-notch negotiators should be a priority for each organization. Technology offers a lot of exciting options in this space with a very positive business case.

World-class negotiators generate up to 3% more EBIT across all functions, according to a McKinsey survey among C-level executives. Realizing the full potential of supplier negotiations is much more challenging today. Getting a good price is not good enough. Negotiators must pursue multiple objectives like security of supply, sustainability, etc., manage supplier relationships and keep internal stakeholders happy.

There are four main differentiators of world class negotiators:

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Be prepared for a shift in power balance!

The power balance has shifted and is now often more in favor of suppliers. Relationships are much more important. You need to adjust your supplier negotiation style. Think about how you can become an attractive customer for the supplier. Manage the relationship angle with care. This does not mean being soft. Be tough on the content but avoid antagonizing your counterpart.

Build a relationship to explore the best possible deal. The current environment causes a lot of stress to individuals which makes a notable difference if you can show empathy and try to understand the needs of your counterparts.

Explore the full solution space!

Be open to joint problem solving in the negotiations with suppliers. Explore all options of a deal. This can help unlock capacity across all tiers of your supply chain. You can start with a blank sheet and figure out what works best for both parties which include insourcing, joint ventures, co-investments, or firmer volume commitments and demand forecasts.

Joint ventures of  automotive players (Tesla with Panasonic or Volkswagen with Northvolt) with leading EV battery suppliers are a good example. Volkswagen has also bought a stake in the start-up Quantum cape. This goes far beyond their collaboration with traditional suppliers.

Tesla as the industry benchmark is even getting active upstream negotiating with mining companies to get direct access to raw materials and buy stakes in new mines to secure capacity.

“Today is not only a great milestone for Northvolt, it also marks a key moment for Europe that clearly shows that we are ready to compete in the coming wave of electrification.” ― Peter Carlsson, Northvolt’s CEO regarding USD 1bn investment by Goldman Sachs and Volkswagen

Have all the facts on hand!

Be well prepared, gather all the intelligence you can get! Invest in supplier and supply market information. Develop a perspective on the evolution of the supply and demand balance. Assess the impact of investments into new capacities and the emergence of new suppliers. Understand the impact of major cost drivers and changes in exchange rates. Given the dynamics in the supply markets, you will reach surprising insights.

Be brutally efficient!

The number and complexity of negotiations are increasing. Supply chains getting more complex. The market volatility causes more frequent price adjustments, and the need for re-negotiation is higher than ever. Ensure that you can cope with the workload. Ensure that you prepare and execute each supplier negotiation with the right diligence.

World-class negotiators leverage technology to boost their negotiation outcomes. This includes AI-powered negotiation platforms and analytics and research tools to give them an edge over their counterpart.

Do you want to know more about what world-class negotiators doing? Have a look at our negotiations handbook and ask for a demo of our AI-powered-negotiation platform DEALS.

The number one mistake that most companies make in procurement is that they do NOT manage their suppliers.

Now, what do I mean by that?

First, you need to understand that a company is not just an isolated entity that can work completely independently and be competitive in the market without external partners and suppliers. A company is part of a larger supply and value chain. A supplier is an extended ‘team’ that is part of the company’s value chain. A supplier contributes to the value chain, like an internal team/department does, to the overall aim of serving the end customer. A supplier just happens to be a team that works in a different legal entity outside the company, but the supplier can still have a significant influence on the company’s overall performance and competitiveness – as can an internal team.

Or in other words: A company can have two types of suppliers:

1. External suppliers – what we normally call ‘suppliers’.
2. Internal suppliers – what we normally call ‘employees’.

With this understanding, we can now look at how companies normally manage these two types of suppliers. As both the external suppliers and the internal supplier (employees) are part of the company’s value chain they both need to be managed to maximise the value output from the company and to reduce costs.

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Management by Objectives (MBO) for ‘internal suppliers’ (employees)

Management by objectives (MBO) or Management by results (MBR) as the recognised Harvard Professor Peter Drucker named it, is widely recognised as the best practice within management. According to George Odiome, MBO can be defined as:

A process whereby superior and subordinate managers of an organisation jointly define its common goals, define each individual's major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members.

MBO can be illustrated as below 5-step process:

It is widely recognised among top leaders and business thinkers that MBO is the best way to manage organisations, internal business units, teams and people, or the internal supplier as I call them.

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Management of external suppliers

However, when we look at management of external suppliers’ companies do NOT practice MBO. Many would object to this claim by saying something like:

Objection 1: ‘We manage our suppliers very closely on cost.’
Objection 2: ‘We manage our suppliers closely on delivery performance.’
Objection 3: ‘It’s not relevant to use MBO on suppliers as they are not that important’.

My short response to all three objections is: They are not right (in nearly all larger companies).

I feel comfortable claiming this because I have worked for +14 years in procurement and I have helped hundreds of large companies within the supplier management space across +10 countries and I know what the real practices used within supplier management are within larger companies in the Western World. And it is NOT MBO.

Regarding Objection 1

When many companies would say that they manage suppliers closely on cost, they actually mean they manage on price! The big difference here is that the price is just one element into the ‘total cost of ownership’ calculation that would make sense to do on suppliers as there are many other costs associated with having a supplier. And only very few companies actually try to calculate and manage the total cost of owning a supplier. I have only seen very few real examples.

Regarding Objection 2

When many companies say they manage suppliers on delivery performance, they actually mean that they have a solution where they can internally measure the delivery performance. But they only share the performance data with suppliers when performance is low (when there are problems). That is not MBO. In MBO thinking, specific objectives for delivery performance should be set up front and agreed with suppliers, and then the delivery performance data should be continuously (and not just once a year) shared with suppliers – also when performance is high.

Regarding Objection 3

When many companies say that it is not relevant to use MBO on suppliers they completely ignore the cost structure of the company. Over the past decades, there has been an increase in outsourcing, which has meant that the external spend (supplier costs) now represents a larger share of revenue, typically 40-70% of revenue in a manufacturing company, where labour costs typically represent 10-40% of revenue. Furthermore, there is good reason to believe that suppliers to a greater or lesser extent influence the level of internal labour costs, as a 'good supplier' helps a customer reduce labour costs, while a 'poor supplier' increases labour costs. That is why MBO is also highly relevant in most larger companies in relation to suppliers because suppliers are the majority of the total costs within the company.

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Supplier management by objectives (SMBO)

This is why a new concept or practice is highly needed to stimulate greater value creation via suppliers. A concept I would call ‘Supplier Management By Objectives’ (SMBO), which can be defined this way:

A process whereby managers of suppliers and their suppliers jointly define common goals, define each supplier's major areas of responsibility in terms of results expected of the supplier and use these measures as guides for operating the cooperation and assessing the contribution of each supplier.

SMBO can be illustrated as below 5-step process:

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Benefits of SMBO

The benefits of implementing SMBO are many:

SMBO develops a result-oriented fact-based focus

The SMBO process is all about the delivery of results (outcome) as opposed to management by crisis or feelings. The SMBO process is done in a way that makes objectives measurable and verifiable, whilst making sure that each and every one can be attained. The idea is that problem areas are highlighted, with goals put in place to iron out those issues, thus making everyone more effective in the job that they do.

SMBO facilitates effective control and progress

One of the main features of SMBO is the continual monitoring of progress. This allows everyone to measure their performance against the standards that have been put in place. It is those clear standards that allow everyone to work towards a very identifiable set of goals, all allowing for better control.

SMBO facilitates effective planning

SMBO makes planning in the supply chain much more effective. Everyone is forced to look at results as opposed to feelings or crises management. When effective planning is put in place, fewer of those problems tend to arise, allowing the company and supplier to focus on what is important.

SMBO acts as a motivational force

Since everyone is on the same page when it comes to reaching goals, there is a higher level of imagination and creativity that comes with that. With everyone working together for a common goal, there is a much higher level of motivation to reach them.

SMBO facilitates personal leadership

SMBO gives supplier managers and suppliers the opportunity to display their skills and performance. Keeping all suppliers focused will paint a supplier manager in a very positive light and make them more likely to advance within the company.

I hope this inspired.

Reducing costs that will have instant and lasting effects is crucial during these uncertain COVID-19 times of crisis where sales and turnover are under pressure in many companies. Even if your business is not suffering during this crisis you still can look for more opportunities to create greater cost savings, as you will have more levers to offer suppliers to gain reductions in return.

Often working with existing suppliers is a much faster route in creating real and lasting cost reductions, because you already know the suppliers who are fully implemented, and the suppliers already know your business.

Understand that if you were to follow the traditional route to cost savings, you would make a tender, negotiate, select a new supplier, implement and then maybe realize cost savings.  

In most cases, the problem with this approach is that it takes time and significant resources (costs) to do this exercise.  

There is a significant time lag on cost saving, as it is not realized until the supplier is fully implemented, which requires considerable time and costs. In addition, there is a real risk of hurting the relationship with existing and good suppliers when you run tenders, which is why they should be carefully considered before executing.

We present concrete suggestions to how companies can remove costs effectively via initiatives towards existing suppliers without running any tenders or RFQ processes.  

It is often a far easier and faster approach than having to replace existing suppliers, as the new suppliers need to be implemented fully before real cost savings can be generated.

1. Remove costs you don’t need

Your first step should be to remove costs that you do not actually need. In most larger companies there is a great lack of transparency between the people who actually approve and pay for products and services (your external costs), and the people who actually use and utilize the associated product or service. Therefore, you should identify these products and services not being used or utilized.

2. Offer Top 20-30 suppliers help in return for helping you reduce costs

By focusing on your top 20-30 suppliers you probably cover +60% of your total spend and therefore a large share of your total cost reduction potential.  

Invite all these top suppliers to an (online) business review meeting and ask them to bring their relevant representatives, and not only the key account. You need in the meeting people that can make decisions in relation to the topics you want to bring to the discussion.

Inform suppliers about the situation as you see it and inform them in a polite and respectful manner that you need to explore opportunities regarding reducing your costs towards them.

Also inform them that you want to bring something to the table and offer the supplier help in any way you can, except for cost increases. The last comment is very important!

Even in these tough times you or your company probably have something non-financial to offer the suppliers that is of a great value to them. Maybe you have not realized you have this, so be creative here and spend some time making a ”catalogue” of initiatives you could take to help the supplier.

For each supplier prepare which of your “offers” you want to try and sell and prepare your arguments. If the suppliers themselves do not have any suggestions to what they would like from you, then present your catalogue.  

Then initiate the discussion with the supplier and be open, honest and creative.

By doing so, new solutions might open where you can help each other, and you can reduce cost instantly with existing suppliers and improve your relationship with suppliers.

3. Reduce non-conformance costs

Non-conformance costs are the costs arising from the suppliers not delivering in accordance with the expected quality, quantity or time.  

To reduce these costs you should start tracking supplier non-conformance experienced by the people in your company receiving and using the goods or services delivered by your suppliers. This is easier to implement thank you think.

Find out more ways for cost saving in procurement

There are many ways to reduce costs without any use of tenders and RFQs. This article has provided you with a range of ideas on how this could be done in your business. Using the approaches outlined here combined with your understanding of your own business and creative thinking can generate great cost reductions that will be instant and lasting.

Recently, an honest procurement leader asked us the question: ‘What is SRM?’

I think this is a very relevant question, as there seems to be no consensus on what SRM really is. In my experience, you can ask ten CPOs this question and you would probably get ten different answers.

SRM as a practice is very immature. Compared to CRM (Customer Relationship Management) widely used in Sales, we must admit that we are maybe 10-20 years behind sales practices, and we could learn a lot from sales in the professional way sales manage customer relationships.

In an attempt to answer this relevant question, I decided to write this blog about SRM to give our perspective on SRM as a practice.

What is SRM?

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Supplier Relationship Management (SRM) is a systematic, enterprise-wide assessment of the capabilities of suppliers toward an organization, a determination of which activities to engage in with different suppliers, and the planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through this interaction. The focus of SRM is to develop two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of collaboration, innovation, and competitive advantage than could be achieved through a traditional, transactional purchasing arrangement.

In other words, SRM is a comprehensive approach to the tasks of tracking and managing an enterprise's interaction with the organizations that supply the goods and services it uses. The goal of supplier relationship management is to plan, track, structure, streamline and make more effective processes between an enterprise and its suppliers on both operational, tactical, and strategic levels.

Over the course of time, companies engage in multiple interaction activities with their suppliers; looking at Spend/POs, negotiating contracts, joint product/solutions development, receiving/using products/services, having review meetings, and so on. The many interaction activities with suppliers should be viewed as a relationship, one which can and should be tracked and managed in a structured and coordinated fashion across functional and business units.

What is the added value of SRM?

SRM increases efficiency and reduces the cost of processes associated with suppliers on both operational, tactical, and strategic levels, e.g. when receiving/using products and services, developing new solutions/products, continuous improvements in the value chain, and managing joint projects.

SRM also gives procurement leverage in the (re)negotiation with suppliers. With a complete picture and understanding of the relationship with a supplier across all business units and functions, procurement has the insight and facts needed to negotiate even better terms or identify areas where a supplier needs to improve to create more value (or reduce costs) for the company.

Finally, SRM enables procurement to make a greater impact within the business. With an understanding of the relationship with each supplier across the entire business, procurement can better understand the experiences and needs of the business in relation to its suppliers, and hereby meet these needs in a better way, creating greater value beyond cost savings.

What framework should we provide the category teams with?

SRM is a process that (in order to be very effective) needs to be supported by a type of solution that enables logging of interaction with suppliers, e.g. performance data, satisfaction, documentation etc.

What should the future role of a Procurement department be?

The role of the procurement manager (or category manager) will be to manage suppliers. Our motto is: “Don’t manage costs. Manage suppliers”. The reasons for this statement are many, but our key argument against a narrow focus on cost saving is that it will actually cost you in the long run. Not many CFOs want to acknowledge this, but it is a fact. Focusing only on pushing prices on suppliers will likely damage the relationship, and you will not get the value from the supplier you could have had.

Instead, value-focused procurement managers need to have at their fingertips every piece of data about their suppliers (and not only price data) in order to put forth the most effective messaging and tactics to actively manage their suppliers, so the suppliers take needed action that will increase value creation for the company. Procurement managers also need all the interaction data they can get on a supplier to gain leverage and improve a negotiation result. This way a more holistic approach to procurement and supplier management can actually end up reducing costs and creating even more value.

SRM will be the next big thing in procurement following the era of category management practice, because the potential in SRM is enormous and can become an important part of every company’s competitive strength. We believe that the use of SRM solutions will skyrocket in the coming years, as it will become a must-have for most professional organizations to enable greater value creation in procurement.

Being an essential aspect of any larger business, procurement comes with a number of responsibilities and complex tasks. These include identification of buying needs, negotiation, vendor management, payment processing and the like. When it comes to manufacturing, the right procurement processes can open doors to better cost management, risk reduction, stimulation of supplier innovation for higher competitive advantage, etc. But what strategies can help procurement professionals and supply chain functions improve procurement performance in manufacturing? Keep reading to find the answer to this and many other relevant questions and learn how to improve your procurement strategies.

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As a procurement professional, you should not only be able to manage the organizational spend, but also implement correct procurement policies in order to reach balance in the overall process. However, these make up only a small part of the whole procurement challenge awaiting you. Such activities as contract management and supplier lifecycle management fall under the large list of your responsibilities as well. It’s completely natural that among all the responsibilities you might come across a number of different issues and challenges. The day of a procurement manager is never boring or slow. Being flooded with a number of tasks to be done, you will have to find ways to solve the above-mentioned procurement challenges that appear on your path.

What Common Challenges Do Procurement Professionals Face?

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Let’s first have a look at some of the most common issues that procurement managers stumble upon. This way you will be able to dive deeper into the matter and think of better procurement solutions yourself:  
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• Internal or External Stakeholder Communication: Communication both within your departments and with your vendors and suppliers is of crucial importance. Poor communication can lead to misunderstandings and other resulting issues. A supply chain can be successful only through the productivity of each person involved in the procurement. The latter point depends not only on good work but also stable communication within the team. As a procurement manager, you should develop a strong procurement strategy which integrates with the general corporate strategy. This way you’ll be able to collaborate with the upper-level management team and keep everyone in tune with what’s going on in the supply chain. In addition, you should also be on good terms with your suppliers.

• Cost Management: Another issue that you might have to deal with is cost control. It goes without saying that the costs of products, materials and transportation are constantly fluctuating. Moreover, demand and value are also undergoing changes. You will need to keep up with these shifts and make sure they don’t affect your business relatively negatively.

• Proactive Supplier Management: And last but not least, it’s important to have effective supplier relationship management strategies. Here we can go back to the preservation of solid communication with your suppliers, which can be the key to improving your supplier relationship.

As it becomes obvious from the above-listed issues, procurement is not an easy responsibility to carry out but with the right tactics and wisely chosen strategies you can surely be a success in it.

5 Strategies to Help You Boost Your Procurement

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In order to help you in paving the road to a successful procurement execution, we have made a list of the 5 most effective procurement strategies. The implementation of these strategies combined with a well-thought procurement plan will highly boost your business and take your procurement game to the next level.

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1. Consistent Management of Supplier Relations and Supplier Performance

The risk of supply chain disruption can be minimized with the help of trusted suppliers. Businesses depend on suppliers when it comes to such issues as cost reduction, delivery service, product quality improvement, product innovations and better and faster product creation. Keep consistent contact with your suppliers and track their performance consistently and share the performance data with them consistently. This way you will be able to deliver the highest quality procurement services and have trustworthy suppliers, who will focus on the KPIs you share with them.

2. Acceleration of Innovation, Production and Time to Market

Successful organizations expand into new markets by creating and offering new, unique and innovative products. You should do your best to deliver what your customers want ahead of the competition. This way you’ll highly boost your business and enhance the collaboration with your suppliers creating stronger bonds and business connections. Procurement itself is an essential part of contributing to this evolution by creating cross-functional teams and operational efficiency. Development of a well-thought and effective process in order to have a high-quality new product introduction and improve supplier innovation is also important.

3. Develop your Knowledge of Supply Chain Management

Learning and gaining deeper knowledge about procurement and supply chain management always come in handy for procurement professionals.

4. Customer-Oriented Services and Processes

As a procurement leader, the purpose of procurement processes is to make the procurement professionals or the whole department more efficient. However, these processes should, first of all, focus on making the internal customer service more effective. It’s common knowledge that most world-class procurement organizations aim their processes at meeting the needs and demands of the internal stakeholders or customers.

5. Implement Innovative Software Solutions for Better SRM

The new era makes different business processes much easier for everyone and procurement is not an exception. Take advantage of the innovative software technologies and improve your supplier relationship management making it more effective and organized.

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A user-friendly SRM solution will come with a number of advantageous features some of which are as follows:

• Highly simplified supplier management and collaboration process
• Collection of all the required data in one easily accessible place saving you time
• Improved and enhanced supplier performance due to better and more consistent measurement
• Reduced risk of disruptions due to supplier delivery failure

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To narrow down your search for the right software solution, you can check out LeanLinking. This user-friendly solution will enable you to measure and benchmark the services of your suppliers, logistics, quality, innovation and willingness to cooperate. With the help of LeanLinking, you will get an executive summary for every supplier in just one click. Moreover, your suppliers will also have the needed data shared with them in real-time.

Most medium to large size companies, work with a huge number of suppliers, which fuels supply chain complexity. The number one mistake in procurement is that companies fail to properly manage their suppliers and the related external spend. As the supply chain grows bigger and gets more complicated, the need for supplier relationship management solutions increases. SRM software aims to simplify the management process and supplier performance evaluation process to drive effective results. In this article, we’ll discuss the advantages and disadvantages of using SRM software to clarify all the mixed opinions out there.

Pros of SRM Software

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Make Fact-Based Decisions

Using SRM software will help your business make fact-based decisions. You will be able to track all your suppliers based on their performance, past history and issues. Being a professional procurement function requires fact-based decision making, which is based on real data (and not feelings). Without data, you can only have opinions. With the help of SRM software, you’ll be able to track your supplier performance and collect factual data, which will guide you in your decisions about what suppliers to exit, downsize or maybe increase your cooperation. It will also help you identify areas of improvement where the supplier or your side need to change to improve the cooperation between the two parties and take out costs.

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Reduced Costs

There are many reasons why SRM software can save you money; however, the most obvious one is that SRM software will help you manage suppliers, meaning identifying areas that can be improved, which will help you reduce total cost of ownership and increase your company’s competitiveness in the market. A narrow focus on price saving will likely cost you in the long run as a focus only on price savings means that other elements in total cost of ownership, such as cost of poor supplier quality, cost of poor supplier delivery, etc. are completely ignored. Focusing too much on price savings is a short-term approach, which can likely hurt your relationships with suppliers, which can be critical especially when it comes to strategic suppliers that are critical to your company’s competitiveness. In strategic/non-commodity categories, the long-term approach should be to enhance your relationship with the supplier, which will help you engage with the supplier in a more constructive dialogue where topics like cost-out initiatives and supply chain alignment can be discussed to improve overall supply chain performance between the two parties. By managing suppliers using SRM software, you can increase the chances of reducing total costs (and not just price) in the long run.

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Improvements Based on Specific Objectives

If you want to improve your suppliers’ performance and refine your supplier performance management process, you need to constantly work on develop your supplier objectives, which can be supported in SRM software. You need to talk with your suppliers in a fact-based manner about the specific targets (not only price targets) you set for them and you need to continuously update the suppliers on how they are performing on these objectives. SRM software tracks and keeps all the metrics regarding the suppliers’ performance, and the great SRM software enables you to seamlessly share all these data with your suppliers. This enables you and the suppliers to jointly spot specific issues regarding the supplier’s performance, service, and quality that needs further investigation and maybe improvement. SRM software helps you track supplier performance seamlessly, which is the first step in finding ways to improve the cooperation and your company’s competitiveness in the market.

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Instant Feedback to Identify Areas of Improvement

SRM software helps you instantly identify red flags, but it also helps you fix the issues not only by tracking performance but also by enabling communications internally and externally with suppliers. Communication between the suppliers, you and your stakeholder is a crucial element of identifying improvement areas. With the help of SRM software, the supplier can get instant feedback from the stakeholder on the stakeholders experiences in relation to the supplier, which will enable to clearly identify the areas of potential for each supplier. In large organisations the business is not between procurement and the supplier – instead it is between the stakeholder and the supplier, which makes the stakeholder feedback crucial to be able to manage cost and suppliers. Good SRM software can enable this communication between stakeholders, suppliers, and procurement, which enable instant transparency and faster solutions to problems.

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Get a 360° Picture of Each Supplier

It's nearly impossible to get a full understanding of supplier performance and manage everything accordingly if all the information regarding suppliers’ services isn’t collected in one place in one solution. Using SRM software will provide you with combined ERP supplier data and soft stakeholder feedback on suppliers all in one place so that you’ll get a full 360° picture of each supplier. In order to perform an objective 360 supplier evaluation, you simply need to have SRM software.

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Long-Lasting Relationship

A long-term relationship between the supplier and buyer offers so many advantages, such as free-flow of feedback and ideas, effective supply chain, better customer service, and even lower costs. For example, new ordering processes and inventory control would become a joint venture, which will deliver operational and financial benefits to both sides. So having a long-lasting relationship is a valuable asset for both parties. SRM software shows the benefits for each side which supports long-lasting relationships.

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Improved Coordination, Consistency, and Transparency

Supplier relationship management puts an emphasis on the consistency of approach and behaviors, which would enhance trust over time. An effective SRM requires a new approach to collaboration with suppliers, eliminating all the outdated practices limit the value creation for both parties. This is achieved by better coordination and more consistency. The aim of SRM is to carry out all the interactions with suppliers in a coordinated manner across the overall relationship life cycle, maximize the value of these interactions. This approach brings to a structural collaboration between parties, which goes beyond a buy-sell operation and expands into transparency and trust.

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Enhanced Fairness and Motivation

The transparent working procedure brings us to a stronger relationship, and hence, to shared responsibility. The sense of a fair working environment is a direct consequence of transparency, while fairness is proven to increase motivation. The evidence of the interconnection between fairness and motivation has been discussed in numerous research, opposing the standard assumption that material payoffs only drive motivation. The psychology of incentives suggests that the key driver of human motivation is trust and fairness.

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Accessible Measurements and Increased Visibility

The main conclusion we can make from all the above points is that SRM Software makes more complex supplier management performance accessible to measurements while increasing the visibility and the relevance of KPIs. You will be able to set specific measurements for every supplier, while the relevant KPIs will guide you throughout the supplier performance process. It will be more effective for the suppliers as well, as they would know exactly how their performance is measured and would try to correspond to the KPIs set.

Cons of Using SRM Software

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Takes Time and Focus

Obviously, implementing SRM software will take time and focus, just like any new project you undertake.

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Requires Changes in Behavior and Culture

Probably the biggest challenge in implementing a SRM solution is that it will probably require a change in the behavior, roles, and responsibilities of the people in your team using the solution. SRM software offers a new approach to supplier relationship management, that is often more data-driven and fact-based, which requires supplier managers or category managers to start interpreting new types of data and engage with suppliers to discuss these data with suppliers. This can be a big change for many people, who might have been used to (just) focusing on price.

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Requires Investment

One of the most obvious disadvantages of SRM software that you might think of is the investment it takes. However, when evaluating SRM software investments you should evaluate the investment against the value it brings. We have already discussed how SRM solutions can reduce your costs in the long run, so think about the long-term value you are ‘buying’ with SRM software.

Conclusion

Using an SRM software can be game changing for any organization. Alongside cost saving and fact-based decision making, you will be able to get a 360° picture of each supplier, instant feedback, and a long-lasting relationship with them. But you need to be willing to invest some time and resources into the process.

“Don’t manage costs. Manage suppliers” is our motto. Why? Because it makes financial sense.

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In this article, I will shortly explain the reasons for this motto and explore why procurement should pay greater attention to the supplier management practice instead of having a narrow focus on price and cost saving.

The future of procurement is supplier management – not cost savings. CFO must realize this fact.

We claim that the future role of procurement will be to manage suppliers – not costs. There are many reasons, but our key argument is that a narrow focus on cost saving will cost you in the long run. Not many CFOs want to acknowledge this, but it is a fact that relationships matter when it comes to business, even for CFOs. Focusing only on reducing prices and pushing suppliers is evidence of a short-term approach and will most likely damage the relationship, and you will not get the value (in terms of help, service, innovation, etc.) from the supplier you could have had and may suddenly need.

We acknowledge that in certain commodity categories, it makes sense to focus only on price, but these categories are minor compared to other non-commodity categories where service, logistics, support, innovation, and other add-on services play an important role in the full value delivered from a supplier to your company.

Look at Google and Unilever

‍Google is probably one of the best examples in this context. In GoogIe’s procurement team the term ‘savings’ is simply banned from being used. The reason is that Google does not focus on saving an extra X% on price. Instead Google focuses on finding and working with suppliers that can help the company develop the next big product or solution for the market, be it self-driven cars or air-balloons to fly in the sky providing internet to the entire world.

At Unilever, they have a ‘Partner-to-Win’ program, which represents Unilever’s approach to ‘building long-term relationships with selected key strategic supplier partners in order to achieve mutual growth, both for their suppliers and Unilever’. Part of this program is that the entire Unilever top management team spends two full days with the suppliers’ top management teams to give direction and identify new opportunities.

This raises the question: How many days has your entire top management team spent with your suppliers over the last 12 months? Maybe you should be bold enough to ask them.

Supplier management and SRM will also make sense in your company

As procurement leaders, we should learn from these great companies. Google and Unilever do not initiate these projects to be friendly. They do it because it makes financial sense. And supplier management initiatives like an SRM program will also make financial sense in your company.

Be the leader of your suppliers

We believe that as a procurement leader, your role will be to lead your suppliers, using all the cards you have available. This means to show the initiative in relation to suppliers, communicate a direction for your suppliers, measure their performance, and then engage with them to influence and manage them in the direction you want them to go. The procurement leaders that succeed at this practice will not only be extremely successful in their procurement role, but they will also advance into even greater roles.

Conclusion

Working closely with suppliers and managing relationships to build even greater processes and products that help your company gain the competitive advantage over your competition, should be at the top of the agenda for procurement. And as procurement leaders we should be bold, ambitious and smart enough to challenge our CFOs, or maybe even the CEO, on a narrow cost saving focus to mobilize a new perspective on procurement’s role within the company.

So, are you ready to challenge your CFO?

There is a lot of talk in procurement environments about the role of procurement within companies. Chief Procurement Officers from even large multinationals with billion-dollar procurement budgets ask each other questions like: "Why is Procurement not on the CEO’s agenda?" and "Why is Procurement not strategically important?".

These questions are relevant and valid, as over the past decades a general tendency has increasingly placed Procurement as a strategically important function.

Over the past 20-30 years we have seen an increase in the extent to which a company's value creation is outsourced to suppliers, as companies increasingly concentrate on core competencies. Often, we see that the cost of external suppliers constitutes 40-70 % of turnover in manufacturing and wholesale businesses, while the internal labour costs are often substantially less. Yet we dare to claim without evidence that business leaders to an overwhelming extent have significantly more focus on internal labour costs than external supplier costs. In other words; we believe that members of top management focus too much on labour costs and not enough on supplier costs.

Over the past decades, the cash flow of companies has attracted significantly more focus from business owners and managers, which the procurement function greatly influence both through the negotiation of supplier payment terms, but also through delivery and storage contracts with suppliers.

Objectively, it is therefore surprising that procurement executives today ask each other the questions posed above.  

It is this article's claim that there is a general lack of understanding in the top management of the potential impact of procurement on total business performance and competitiveness, but at the same time there is a lack of initiative and boldness in procurement to influence top management. This article will highlight some tendencies that underpin these claims.

Why is procurement not on the CEO’s agenda?

Point 1: Lack of recognition of how the value chain is structured

Over the past decades, there has been an increase in outsourcing, which has meant that the spend value now represents a larger share of revenue, typically 40-70% of revenue in a manufacturing company, where labour costs typically represent 10-40% of revenue. Furthermore, there is good reason to believe that suppliers to a greater or lesser extent influence the level of internal labour costs, as a 'good supplier' helps a customer reduce labour costs or increase value creation, while a 'poor supplier' increases labour costs.

You can compare the share of top management's time and focus, which is spent on internal employees (the 10-40% of revenue) and external suppliers (the 40-70% of revenue), respectively. There are no studies available, but it is this article's claim that top management generally spend significantly less time and focus on suppliers than their costs and potential actually justify. From a pure cost consideration, top management ought to spend more time and focus on managing suppliers and related costs than the time they spend on controlling labour costs.

Point 2: Top management’s one-dimensional cost focus and lack of total measurement

Several studies have shown that the procurement function is predominantly measured and assessed on price reductions and cost savings. These objectives are typically achieved by demonstrating that the procurement function can buy the same service or product at a lower price than before. This is the most important competence in the procurement function; the ability to negotiate a lower price with a supplier, and the negotiation space is thus reduced to an almost one-dimensional price battle.

This method seems to be generally accepted, but is it always the right path to choose? If you take a step back and ask what is relevant to measure in terms of procurement and value creation, there seem to be many other dimensions that should be measured. You may ask, how is value created in the procurement function? Price reduction is a relevant factor, but what about all the indirect costs of a purchased component or the indirect costs a supplier inflict on a company due to e.g. poor after-sales service? Or what about the possible value creation a supplier can bring to the company, for example in the form of flexibility?

The lack of other evaluation criteria than price may be because we have not yet found useful and practical methods for measuring value creation in procurement. It seems obvious to seek inspiration in other functions, such as HR and Customer Service, where there is strong consensus on the relevance of satisfaction measurements in the form of, for example, employee and customer satisfaction surveys. The paradigm here is that, for example, higher employee satisfaction creates more motivated employees, who can create more value for the company.

So why don’t we measure our colleagues’ satisfaction with our suppliers?  

The answer probably lies in the fact that the procurement function and suppliers are considered low priority by management, which results in ‘management by autopilot’ and therefore uses the standard method of measurement: cost saving. That is why it is our job in the procurement functions to make visible to top management that there is great value in extending the measurements, so they also focus on other, possibly more value-adding dimensions.  

We cannot rely on our busy top management to change their view on procurement. As ambitious procurement leaders, we must prove our value and educate top management to understand the full value potential in procurement, which appears to be huge.

Point 3: Lack of understanding of the R&D potential in the supply chain

Most companies and managements ignore opportunities to innovate and develop in collaboration with suppliers, although there are quite substantial economic reasons to focus more on these. Unilever is a good illustrative example. Unilever spends +15 billion euros in total and devotes 900 million euros to R&D. Unilever suppliers invest about 5-6% of their revenues in R&D, equivalent to 750-900 million euros. Or in other words; 750 million euros that Unilever can have access to if the company upholds the right relationship with its suppliers. This is one of the reasons why Unilever has started its Partner-To-Win program, which aims to work closer with strategic suppliers in the fields of R&D and product development.

If you do not have a good relationship and transparent cooperation with each supplier, there is no opportunity to influence suppliers in the direction in which each supplier must innovate/develop, and you are missing out on future opportunities.

Point 4: Lack of skills in business development and value creation in Procurement

Most procurement executives are trained to have a cost focus during their career. The success criteria revolve around their ability to negotiate lower prices - even if it requires a hard bargain with the supplier and might damage the relationship. It can in some categories be the right strategy and approach - for example, in 'pure commodities', where there are many alternative suppliers.

But in other categories, which deliver more than just a raw product, the supplier also delivers design, technology and/or service, and here the cooperation and value creation are considerably more complex. This means that in order to maximize the corporate value of each supplier, using other methods and competencies than 'just' price pressure is critical. It requires that procurement executives are able to cooperate across the organisation and solve problems in a coordinated process in close collaboration with suppliers. Finally, procurement executives should be able to drive interdisciplinary projects and think in terms of added value in the value chain. This requires a new tool-set and new competencies from the procurement executives and not ‘just’ the competence to push price.

Conclusion

This article has highlighted a number of points which explain why the procurement function does not have the strategic role in a company it rightfully deserves. Procurement is often a low-priority function that most top management teams ‘manage by autopilot’, which only measures cost savings. Therefore, we believe it is procurement’s responsibility to show initiative and make visible to top management that there is significantly greater value in developing the procurement function to become a value creating function instead of being ‘just’ a cost reducing function. This requires boldness, smartness and focus but can also catalyst procurement to the top of the CEO’s agenda.

Supplier Relationship Management (SRM) techniques are strategic developments in businesses that are focused on optimising and effectively managing the connections between third-party companies that supply goods and services to the business. The purpose is to systemise the interactions with these suppliers and optimise supplier delivery performance, quality performance, compliance and any details related to the relationship between the business and the supplier.

To ease and structure the implementation of these techniques, many companies use an SRM software that allows them to control these interactions with suppliers to keep a historical scorecard on each supplier and to be able to share the information instantly among specialized personnel in the company and with suppliers. Moreover, an SRM tool also presents a set of attractive advantages that any business would consider useful.

Some benefits of SRM software can be seen below:

• Allows to develop continuous improvement project in the supply chain.
• Speeds up problem solving times when there are problems in supplier deliveries.
• Standardizes supplier performance tracking and measurement.
• Evaluates the overall performance of the vendor, which enables constructive business relationship discussions.
• Automatically systemises every operational process that is included in the supplier management process. This increases efficiency.

Traditional SRM strategies are based on reactive suppliers management where focus is dealing with firefighting and negative situations at any stage of the supply process, this affects the relationships between companies. However, by implementing an SRM solution, you will get ahead of every possible negative situation by completely understanding your relationship with your vendor and planning ahead to avoid ‘fires’ before they start. This saves time, energy and money.

It is important that the company establishes some basic criteria at the time when selecting a SRM solution. Here we will take a look at some of the important factors to take into account and discuss crucial details that must be considered before purchasing an SRM software.

Let’s begin with the most essential one of them.

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3 Factors to Consider When Buying an SRM Software

Factor #1: Is your personnel prepared to execute the SRM process?

As your business realizes the benefits of SRM software, there arises a need to train your personnel in the software in order to optimize your relationship with your suppliers. The skills required to work in an SRM process can be divided into two main groups: business competencies and functional competencies.

When evaluating the personality profile for these tasks, the personnel need to have a balance between the following characteristics:

• Flexible to change.
• Ability to work structured and consistently.
• Team work and communication abilities.
• Relationship building competencies.
• Analytic competencies.

Despite that these personality profiles can be improved with training, there must be an intrinsic ability in the person that will perform the work. This means that the business may need to recruit someone if no one in your team can match the profile.

After training your personnel to deeply understand and manage an SRM process, you must also make sure that your personnel also get detailed knowledge in the handling of the SRM software tool.

Factor #2: Is the SRM software easy to use and implement?

Another important factor is related to the implementation of the SRM software within the company. Will it be easy and seamless to implement? Will it be easy to use for users and suppliers? Will it be easy to share information within the company? Will the stakeholders and vendors be able to provide feedback easily? Are you able to visualize and manage multiple suppliers’ relationships and performance in one and the same solution? These are some of the questions that you must ask yourself when considering if an SRM software will be easy to implement or not.

The possibility to share and easily organize documents, meeting minutes and contracts must be available and must also have a user-friendly interface that makes it easy and pleasant to visualize and read the information. Keeping track of issues and problems within the supply chain is also very important and the SRM software must provide an option to track these issues and make it easier for vendors and the team to notify any issues in deliveries. Real-time problem solving is essential as it optimizes time and money for both the supplier and the company.

These features will make the interaction between organizations much more profitable. You must also measure if the SRM has suitable and simple implementation procedures for your suppliers as well. A too complicated process will simply discourage suppliers to continue using the software effectively.

Factor #3: Do you have access to a complete 360° dashboard with suppliers' performance?

The possibility to track and visualize indicators that allow you to evaluate the performance of every supplier across the entire business is essential to decide which suppliers are beneficial in the long term and which are not. By having a summarized dashboard with relevant information such as supplier’s delivery times, quality standards, prices, compliance scores and any other data that you consider important, you will be able to measure and score every supplier on a consistent and fact-based basis. Your SRM software must have this functionality.

You should also be able to decide whether or not to show this information to your suppliers. After all, transparency is essential in every relationship and that also includes the relationship with your suppliers. The best thing about a great SRM software is that your supplier won’t have to read disorganized emails and excel sheets every time you want to share your KPIs on suppliers with suppliers. Everything should be synchronized, shared and clearly explained via the SRM solution.

The SRM Solution

One of the best things about implementing an SRM solution into your business is that your supplier managers will be able to effectively manage the suppliers proactively in a much more organized, optimal and easy-going way.

This will definitely bring more benefits to your company and will save your procurement team many troubles and time in the long term. Leave behind your old-style procurement procedures that only react when a problem arises and opt for an SRM solution that will jump ahead as the most effective planning tool for your business.

Creating real value in procurement with real impact on the business is key if procurement wants to earn a chair at the leadership table. This will only happen if procurement delivers real value, and not ‘only’ cost savings.

It is a far easier approach than having to replace existing suppliers, as the new suppliers need to be implemented fully before real value can be generated. Today supply chains compete against supply chains, which means your suppliers should be part of your battle against your competition.

You only get them to join this battle by engaging them and working with them towards greater value creation. That is why we are describing the first 3 steps of supplier management initiatives which will bring your business great value.

1. Ask your CEO to be measured on value creation in supplier management

This might not sound simple to you, but it can be a lot easier than you expect. Great CEOs like to be challenged, if you have great arguments. You should ask your CEO to be measured not only on cost savings, but also other metrics related to value creation.

First your CEO needs to understand that your company is not an isolated entity that can work completely independently and be competitive in the market without external partners and suppliers. A company is part of a larger supply and value chain. A supplier is an extended ‘team’ that is part of your company’s value chain.

A supplier contributes in the value chain, like an internal team does, to the overall aim of serving your end customers. A supplier just happens to be a team that works in a different legal entity outside the company, but the supplier can still have a significant influence on the overall performance and competitiveness of the company.

Or in other words: Supply chains compete against supply chains. Your suppliers are an important part of your supply chain, and they should join you in your battle against the competition, and these new metrics should reflect this.

If you only measure suppliers on cost savings, there is a lot of value creation potential from suppliers that will not be realized, and a lot of hidden costs not visible that will continue to be added.

2. Make the most of your time with supplier segmentation

You must segment your suppliers into different supplier segments (could be named strategic, tactical and tail suppliers), which you must manage differently using different approaches and resources.

Segmentation of suppliers is key and a way to help you ensure the proper alignment of your resources and time. Start by identifying those suppliers with whom you can work to achieve greater levels of value creation for your company – let’s call them your strategic suppliers.

These are typically large spend suppliers but could also be smaller, critical suppliers that may be able to deliver innovation or services that could have great value for your company, thus making your company more competitive in the market.

Next identify your tactical suppliers, such as suppliers you frequently buy from but who have limited spend, and where there are alternative suppliers available in the market.

With tactical suppliers you want to maintain a solid relationship but probably adopt a standardized approach that can be semi-automated. The tail suppliers are the rest of the suppliers. Do not focus resources and time on these.

“The point of segmentation is to make clear decisions on how to manage the suppliers in the different supplier segments differently”

3. Create 1%+ real cost savings without any RFQ

The secret of creating 1%+ cost savings without any RFQs is the following:

1. Carry out business review meetings with all your strategic suppliers.

2. Ask suppliers nicely for 2% cost savings, explain carefully that you are under pressure to deliver these savings, and then ask them what you can offer them in return. The last question is very important!

3. You probably have something non-financial to offer that has great value for the supplier – maybe you have not realized you have this, so be creative here.

The suppliers will probably not give you the full 2% you asked for, but they will give you something if you approach them constructively. And then the 1%+ cost savings happen – like magic.

Conclusion

Creating real value in procurement with real impact on the business is key if procurement wants to earn a chair at the leadership table. This will only happen if procurement delivers real value - and not ‘only’ cost savings. Implement supplier management initiatives and see the results.

There are more simple actions you can take to develop great supplier management. Check our SRM Handbook to help you get your suppliers and stakeholders engaged, uncover examples of other value creating metrics that could be applied and propositions for supplier segmentation.

It’s your turn to make a change!

Many procurement leaders have asked us how to plan and implement an effective Supplier Relationship Management program. In this article, we will present six key steps to ensure an effective Supplier Relationship Management program is implemented.

But before we start describing the steps, let’s define what we mean by SRM:

What is Supplier Relationship Management?

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Supplier Relationship Management (SRM) is a systematic, enterprise-wide assessment of suppliers’ capabilities toward the organization. A determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers in a coordinated fashion. The objective of SRM is to maximize the value realized through those interactions.  

The focus of SRM is to develop two-way, beneficial relationships with supply partners to deliver greater levels of collaboration, innovation and competitive advantage than could be achieved through a traditional, transactional purchasing arrangement.  

The objective of SRM is to plan, track, structure, streamlineand make the processes between an enterprise and its suppliers more effective on operational, tactical and strategic levels.  

This means that an SRM implementation involves change, which needs to be considered when planning the SRM process.

The 6 key steps in implementing a Supplier Relationship Management (SRM) program are:

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1. Segment your supplier base

Firstly, you must segment your suppliers base into different supplier segments (could be named strategic, tactical, and tail suppliers) that you will manage differently using different approaches and resources. Segmentation of suppliers is one way to help you ensure the proper alignment of resources within an organization.  

Start by identifying those suppliers with whom you can work with to achieve greater levels of value creation for your company, let’s call them your strategic suppliers. These are typically large spend suppliers but could also be smaller critical suppliers that may be able to deliver innovation that could have great value for your company.  

Next, identify your tactical suppliers that could be suppliers you frequently buy from but who have limited spending and where there are alternative suppliers in the market available. The tail suppliers are the rest of the suppliers. Do not focus resources on these.

2. Set objectives for your SRM program

It is important to have objectives. If you don’t, your team will just move in different directions without achieving anything. The objectives must be aligned with your overall business objectives. If you are a high-tech/innovation company, you are probably not focused on cost savings but instead on innovation capabilities so your objectives in relation to your SRM program might reflect improvements in the supplier portfolio’s innovation capabilities.

If you are a production company producing commodities, you probably have a greater focus on objectives like cost savings and on-time delivery performance to be cost-effective and competitive in the market. Each company should have its own objectives for its SRM program.

3. Measure supplier performance against objectives

What gets measured gets managed. You should define your most relevant supplier performance metrics in alignment with your objectives for your SRM program, and then track these metrics across your suppliers – start by measuring your strategic and tactical suppliers and leave the tail suppliers.  

Supplier performance is much more than compliance and On-Time-In-Full (OTIF) measurement. Value from supplier relationships comes through various processes from simple delivery to product innovative and collaborative activities that focus on solving your customers’ problems.  

Supplier performance objectives and measurements must focus on, and be tied to, your company’s overall objectives.

Typical supplier performance metrics to measure are:

• Delivery performance (data from ERP)
• Quality performance (data from quality systems)
• Service performance (data from surveys)
• CSR performance (data from supplier self-assessments)
• Risk status (data from supplier self-assessments or external data sources)
• Innovation capabilities (data from supplier self-assessments or surveys)

4. Make your supplier engagement and governance plan

You only have limited resources available, so it is important you use these resources best possible. To do this I recommend you make a supplier engagement and governance plan that clearly defines:

• How do you want to manage each supplier segment? Remember, each segment should be managed differently.
• How frequently you should have supplier review meetings with suppliers in each segment?
• What the standard agenda for each supplier review meeting should be?
• Who owns the relations with what suppliers?

By making a supplier engagement and governance plan you make clear decisions on how much time you give to each supplier and ensure that time is not wasted on small unimportant suppliers. I also suggest that you communicate this plan clearly to your entire team, so each person knows his/her role.

5. Engage suppliers, be transparent and get aligned

Segmenting suppliers and focusing time and resources on those strategic suppliers will help to drive the necessary relationship development and performance that can improve your company’s overall competitive advantage.  

Collaboration is something that we hear a lot about, but we may not always be able to clearly define it or even recognize it properly in the context of day-to-day business dealings. We believe that allowing suppliers transparency into your business goals, activities and supplier performance data is a great way to start a more constructive collaboration with selected suppliers. By being transparent you start building a foundation of trust and you get aligned with the supplier, which is essential to creating value together.  

When being transparent you should simply ask the supplier how they believe they can support your business even better given the new information about your goals, plan, activities etc. Often you get surprised by all the great ideas that can arise from such a discussion.

Supplier transparency and collaboration can lead to improvements in both supply availability, supply quality, reduction in wasted resources in the supply chain and even new innovations that helps your company beat the competition in the market.

6. Collaboration and continuous improvement

Within a focused, consistent, and collaborative supplier relationship environment there is a significant opportunity to bring about improvements in supplier quality, delivery, performance, and service. In part, this is an outgrowth of investment in regular meetings with the supplier that focus on all aspects of business performance.

Further, it can be enabled through the sharing of data related to supplier performance measured on different metrics as described above. This data can on a consistent basis effectively flag when actions are needed to fine tune the cooperation and this way continuously improve the cooperation and the overall value creation for both parties.

That’s it. I hope this could inspire. Good luck with implementing your own unique SRM program.

You can check our handbook for more in-depth details: SRM Handbook

Also,if you want to learn about how LeanLinking SRM can help you in the process,please visit: LeanLinking Relations

The ability to generate impressive cost savings is not what separates great procurement teams from the rest. Those who truly stand out are the procurement teams that figure out how to manage the value chain and hence also the suppliers and are able to return real value to the company and its customers.

Most CFOs love cost savings. It's the traditional approach to measuring Procurement. If you ask a CFO how they measure Procurement, they will probably tell you that they focus on cost saving.

There is no question that every business needs to manage costs. However, the ability to generate impressive cost savings is not what separates great procurement teams from the rest. Those who truly stand out are the procurement teams that figure out how to manage the value chain and hence also the suppliers’ performance, quality, service, risk and innovation, and, as a result, are able to return real value to the company.

If great procurement teams are the ones that create most value, why do so many of us find ourselves spending so much time in meetings devoted to cost saving?

I think the answer is quite straight forward: Because cost saving is easy to measure and is a financial measure in its own right. However, there are several important issues in measuring cost saving. Cost saving is in most cases complex and difficult to calculate because you need to take into account not only last year’s prices but also price developments in the market, changes of product/service qualities and specifications etc. to be able to truly assess the degree to which the ‘true’ cost saving is benchmarked against the market. This perspective is also supported by Protiviti’s 2017 Procurement survey that shows that 'nearly half of finance leaders claim that 20% or less of procurement savings wind up contributing to their companies’ bottom line'. So, focusing only on cost saving would be wrong.

What do you think would happen if we spent more time on meetings about SRM, stakeholder/customer needs and value creation?

About how to manage and collaborate with suppliers to get them to work in your organisation’s direction and support your company in creating more value for your customers?  

Consider the example of Google. In Google’s procurement team the term ‘savings’ is banned from being used. The reason is that Google does not focus on saving an extra few percentages on price. Instead, Google focuses on finding and working with suppliers that can help Google develop the next big product or solution for the market, be it self-driven cars or air balloons to fly in the sky, providing internet to the entire world.

What do the best procurement teams do?

In my opinion, the best procurement teams find a simple approach to managing cost at a reasonably low level, but they are relentless in the task of executing SRM and customer value creation via supplier management.

I would go even further by saying that when it comes to evaluating the strength of a procurement team, you need to determine how likely it is that your organisation will actually be able to gain value from procurement in the offering to customers. Not by enabling your sales teams to reduce sales prices marginally (due to lower costs), but by enabling new offerings, new qualities, or maybe faster services (enabled by suppliers) that truly differentiate your company from the competition.

That's why SRM will always eat cost saving for breakfast. Surely, you would rather have modest cost savings and great suppliers that help your company strengthen its value proposition to customers.

One of the main priorities of many businesses is to build long-lasting supplier relationships based on trust and loyalty. However, this can be achieved only through a well-structured Supplier Relationship Management (SRM) process, which will establish a win-win relationship for both sides.

What is Supplier Relationship Management?

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SRM is a strategically planned discipline for managing interactions with third-party organizations, supplying goods and services to your business, with the aim to increase the value of the interactions. To have a prosperous business and build deep-rooted and positive relationships with vendors, you should ponder over improving your supplier relationship management process.

In this post, we have outlined 5 of the most functional and up-to-date ways to improve your Supplier Relationship Management process in a reasonable time period.

Let’s check them out one by one.

1. Segment your suppliers

You may wonder why supplier segmentation is so important. The reason is that suppliers vary depending on their level of engagement, criticality to your business, etc. By classifying suppliers into segments according to pre-agreed criteria, you will be able to provide relevant attention to each of them. It’s a smart way to understand the appropriate level of engagement that you need to provide to different suppliers.

Furthermore, supplier segmentation will allow you to decide upon the vendors, who would be able to create a competitive edge for your company. The absence of a properly planned segmentation may result in a supplier approach that is not differentiated. This means that all suppliers would be managed using the same approach wasting resources on small and non-strategic suppliers, and not spending enough time and focus on the strategic suppliers that give your company a competitive edge.

Supplier segmentation can be done in many different ways using many different segmentation groups, such as strategic, important, or transactional. The key is how you approach and manage different suppliers in different groups, and not the grouping itself.

In addition, you should have your SRM process documented for each supplier segment. This should serve as a direction and a helping guide for both the supplier/category manager and the team, who is responsible for the SRM process.

2. Set the right team

Different supplier segments require different supplier approaches and therefore different competencies. A commodity supplier/category requires a strong negotiator while a strategic non-commodity supplier may require a stronger relationship builder. Research shows that the core of SRM are people and their soft skills. Having responsible people with relevant skills working for your business is vital for a successful Supplier Relationship management program.

Supplier relationship specialists are highly engaged with suppliers. This means that both sides share an interest in boosting the value and profits, and they have created a strong bond with each other. So, having relevant people with the right relationship-building skills and a solid business understanding is important. These relationship-building competencies are typically not found among the strong negotiators, so it makes sense to recruit different people for different supplier segments. Building stronger relationships with strategic suppliers will enhance the improvement of your cooperation, thus improving your business’s competitiveness.

3. Build strong relationships with strategic suppliers

Proper communication is the most essential point in the supplier management processes when working with strategic suppliers. Hence, it’s highly recommended to build strong and trustworthy relationships with strategic suppliers and treat them as your trusted partners. You should show that your interaction with them is not limited to cost-saving initiatives, deadlines and one-sided support only. There should also be discussions and agreements on how to jointly improve the cooperation for both parties, potentially making the joint business and value creation greater for both parties.

The best and most effective way to build constructive communication with suppliers is by sharing your plans, strategies, or goals. Show that you are willing to be transparent. Transparency will not only strengthen the trust, but it will also open new opportunities for suppliers to understand where they fit in your greater plans. Thus, they will be able to proactively suggest how they can help your business be even more competitive in the market.

4. Embrace technology to ease the process

Another way to improve your supplier relationship management is by enabling technology to ease the overall SRM processes. With technology built for CPOs, procurement directors, category managers, supplier managers, and procurement teams, you can automate a significant number of processes that would require a lot of time and effort if implemented without the help of technology. At the same time, technology can enable a much more fact-based approach to the supplier relationship by having key facts related to the suppliers in one solution.

With the help of fit-for-purpose software, you will be able to reduce supplier risk, supplier cost and improve supplier performance, quality and service. In a good SRM solution you would have solutions for:

• Supplier delivery performance management
• Supplier quality performance management
• Supplier spending development
• Supplier data management
• Supplier task management
• Stakeholder feedback loops, so you know stakeholders’ experiences regarding suppliers
• Supplier sharing and collaboration, so suppliers can see how they are measured and how they perform on selected criteria

There are a number of companies that offer SRM software that will keep you ahead of the game, We at LeanLinking are providing Relations, and here is a case study that you can check: DS Smith Has Chosen LeanLinking To Drive Supplier Performance And Compliance

5. Analyze the data and facts

Most companies have relevant data on suppliers that can give different indications on how the relationship is. This can be data regarding the spend, delivery, quality, or service development on suppliers. In many companies, such data are scattered and not utilized to the fullest potential. To avoid any unwanted risks related to the lack of supplier compliance or performance, you should identify what relevant data you can have available and then start tracking and analyzing these data. Such data can be valuable in discussions with suppliers about the performance of your cooperation. It can help you and your suppliers identify areas and processes with challenges that need attention to develop joint cooperation.

With relevant software, you will be able to easily analyze the history of each supplier and mitigate any risks regarding their performance. By analyzing the data and facts, you will be armed with plenty of information that will allow you to build stronger supplier relationship and improve joint performance in the supply chain.

Thanks to proper software, you will be able to leverage the supplier information and consequently negotiate better contracts.

Check out our SRM Handbook for more in-depth details about improving your Supplier Relationship Management process.

In the current situation a lot of companies are struggling with budget issues due to CORONA-19. Crisis hit the businesses which lost customers and faced the problem of cutting the cost in different departments.

In procurement suppliers play a key role and all related to them costs have a big influence on the companies’ well-being. To start cost saving with existing suppliers, businesses should focus on improving their relationship with them.

Start with a supplier survey

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Survey your existing suppliers to identify cost saving opportunities. Your suppliers can be a great source of information to understand how your company operates and how you can remove costs.

Because what makes sense from your perspective might not always make sense from a supplier perspective, and maybe your company has some requirements or structures that add costs for suppliers.

To capture some valuable feedback from suppliers, you can simply make a supplier survey where you specifically ask them to identify areas of potential to remove costs. In the survey you can ask questions like:

1. Please suggest a process or a requirement that we impose on you that we can terminate to remove costs.

2. Please suggest products/services that we buy today that in a simpler form or with a simpler (more standardized) specification could be bought at a lower price.

3. Please let us know how much we can reduce product pricing if we reduce our credit terms to you by 14 days?

4. Please share your ideas on how we can simplify our joint processes and remove costs.

By collecting this feedback from suppliers, you get an ‘idea catalogue’ that you can start

analysing. There will probably be many suggestions that cannot be implemented, but there will also be ideas that you had never thought of that might generate great cost savings.

You can carry out the above survey using e-mails and an Excel-based questionnaire, or some other manual tool or SRM software with the option of creating questionnaires for suppliers.

Collect your ammunition for fact-based re-negotiations

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For selected suppliers it can be necessary to enter a harder re-negotiation process with the target to achieve lower pricing.

To get a great result from a re-negotiation process you need to be fully prepared with all the data and facts you can get access to. This means that you should collect the following data on a supplier:

1. How has your spend developed? If it has increased, you can use this as an argument for requesting better pricing.
   

2. How has delivery and quality performance developed? If the supplier has under- performed it could be an argument for demanding a refund now for keeping the business relationship, or you can seek to get better terms moving forward.
   

3. How satisfied/dissatisfied are your stakeholders with the supplier? If you get negative feedback from stakeholders, it can be a good reason to put pressure on the supplier to offer you better pricing, as the supplier is creating problems in the cooperation, which in turn entails associated costs.
   

Collect stakeholders feedback

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To collect the stakeholder feedback from your organization on the suppliers you want to run a re-negotiation process on, you can do the following:

1. Identify the suppliers to be evaluated. Initially, keep it simple and include a maximum of 20 suppliers in a survey. Later you can always expand to more suppliers.

2. Identify the internal stakeholders who are to evaluate the selected suppliers. For each stakeholder identify what strategic suppliers they each can/should evaluate. Again, keep it simple and later you can expand the number of stakeholders involved.

3. Identify what criteria/questions the suppliers should be evaluated on by your stakeholders. These could be questions (to be rated on a scale from 1=Highly Disagree and 5=Highly Agree) such as:
   
   - The supplier is easy to work with
   - The supplier does not add costs to our operations
   - The supplier solves problems without delay
   - The supplier offers us the support we need to work effectively
   

5. Make the survey and send it to the stakeholders for them to answer. You can do this using Excel, or if you need a more automated solution, you can use LeanLinking.
   

6. When stakeholders have replied, create one supplier report for each supplier. In the report make sure you rank the suppliers so you can use poor ranking as an argument for better pricing as well.
   

7. At the re-negotiation table use all the data and facts collected to create arguments that will help you get better pricing or better terms.

Start cost saving with existing suppliers today

To discover more examples of alternative cost saving ways with existing suppliers you can read our blog about 3 Alternative Ways To Cost Savings In Procurement.

We also recommend you download our free Cost Saving Handbook. This ebook is an excellent and valuable tool for procurement professionals written by procurement experts who know the field from their long practical experience.

The future role of procurement will be to manage and collaborate with suppliers - not just cost savings. The reasons are many, but the key argument is that a narrow focus on cost saving will actually cost you in the long run. Not many CFOs want to acknowledge this, but it is a fact that relationships matter when it comes to business, even for CFOs.

Focusing only on reducing prices and pushing suppliers is evidence of a short-term approach and will most likely damage the long term relationship, and you will not get the full value (in terms of help, service, information etc.) from the suppliers you could have had and may suddenly need.

Only in certain commodity categories and long-tail spend it makes sense to focus only on price. However, these categories are minor compared to other non-commodity categories where service, logistics, support, innovation, and other add-on services play an important role in the full value delivered from a supplier to your company.

Get inspired by the best

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Google is probably one of the best examples in this context. In Google’s procurement team the term “savings” is simply banned from being used. The reason is that Google does not focus on saving an extra X% on price.  

Instead Google focuses on finding and working with suppliers that can help the company develop the next big product or solution for the market. Like self-driven cars or air-balloons providing internet to the entire world.

As procurement leader your role in the future will be to lead your suppliers and apply the practise in SRM and supplier collaboration.  

This means to show initiative in relation to suppliers, communicate a direction for your suppliers, measure their performance, and then engage and collaborate with them to influence and manage them in the direction you want them to go.

The procurement leaders that succeed at this practise will not only be extremely successful in their procurement role, but they will also advance into even greater roles like COO and CEO.

Why SRM is the future of procurement management?

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Supplier Relationship Management (SRM) increases efficiency and reduces the cost of processes associated with suppliers on operational, tactical and strategic levels. For example, when receiving/using products and services, developing new solutions/products, continuous improvements in the value chain and managing joint projects.

What is more it gives an opportunity to identify areas where suppliers need to improve to create more value (or reduce costs) for the company. The value creation in a well-executed SRM program is clear.

Thanks to that, you can meet the needs in a better way, creating greater value beyond cost savings.

Your turn to implement innovation to procurement management

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SRM enables you to manage suppliers, so they can help your company be even more competitive in the market either via better delivery/quality execution, faster services, new innovations etc.

Enter the future of procurement management by reading SRM handbook to uncover all the aspects of successful supplier relationship management. It will help you to deeply understand why SRM program is necessary for every procurement professional and what values it brings to your business.

The potential is huge and unexploited, which is the reason why you should get started today at building and implementing your SRM program.