Cost Saving Opportunities In Procurement With Existing Suppliers
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
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:
- Please suggest a process or a requirement that we impose on you that we can terminate to remove costs.
- 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.
- Please let us know how much we can reduce product pricing if we reduce our credit terms to you by 14 days?
- 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
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:
- How has your spend developed? If it has increased, you can use this as an argument for requesting better pricing.
- 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.
- 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
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:
- 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.
- 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.
- 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
- 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.
- 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.
- 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.