A couple weeks ago, NPI spoke to a group of supply chain and procurement executives about how to improve sourcing effectiveness. Each company in attendance had a unique set of challenges, but the conversations had a similar theme: How do I improve the relationship between sourcing and my department?
- Break down barriers to cross-functional sourcing. This is the first and most important step to improving sourcing effectiveness in any area of business. Sourcing has to be a collaborative process between procurement, finance and the business/department owner (e.g. IT, logistics). Without this collaboration, sourcing fails the organization.
- Identify areas of complex spending and analyze for overspending. These are areas with low pricing visibility, complex terms and dynamic vendor landscapes.
- Benchmark pricing and terms. Major purchases in complex spend categories don't happen very often. Therefore, it's difficult to collect enough pricing data points to understand if you're getting a fair price. It's important to benchmark your pricing and terms -- even if it requires outside assistance -- to make sure you're getting the best deal possible.
- Negotiate with the clearest possible understanding of... vendor pricing, contracting behavior, profit margins and price justification -- again, this may require outside assistance if the particular spend is not something you do regularly. This will minimize overspending and ensure fair market value. Interestingly, it can also enhance your vendor relationship -- if you understand their motivations and objectives as well as your own, it is easier to negotiate a win/win outcome.
- Manage vendor contracts throughout duration for long-term savings. Spend management doesn't stop when the ink dries on that initial contract. Annual rate increases, your economic performance and changes in the market landscape are all reasons to revisit the pricing and terms in your contract.
-- Jeff Muscarella, EVP of IT, NPI