Supercharging Procurement’s Buying Leverage

Spend Matters welcomes a guest post from Jim Kiser of GEP.

In today’s competitive business environment, companies are under pressure to increase their profit to achieve higher shareholder value. Companies can raise prices and risk losing market share or cut costs and become more competitive. It is imperative to find ways of increasing buying power to leverage greater value and reduced costs from suppliers. Organizations can develop internal negotiation power by having various departments collaborate on key supplier spend projects that benefit the whole company.

Sharing employees and best practices of various departments allows a company to potentially reap benefits when acquiring goods and services as a single entity with agreed processes. For example, developing open, ongoing discussions between departments, easier, quicker and less costly cross-unit new product launches can be realized. Consequently, this collaborative resource-sharing approach enhances team members’ knowledge and challenges their skills. Procurement starts to become a defined process, not a stand-alone function.

Through mergers and acquisition and/or natural growth, many companies often operate as independent, decentralized business units. As a result, operations are often not in sync with what or how another unit of the company is functioning in another location. In most cases there is little to no collaboration, information sharing or a problem solving network. From a procurement perspective, this leads to ineffective ways of managing business. For example, a company may find that they have several suppliers providing the same product or service and in other instances, the same supplier might have multiple contacts, multiple contracts and multiple prices at various points in the same company’s supply chain. Furthermore, each business unit might do its own procurement. If people are working independently of each other, the company realizes no economy of scale faces greater supply chain limitations and is bogged down by inefficiencies. This exposes the company to exploitation by their suppliers. It may appear easy to talk about the benefits of combining decentralized business groups together to maximize their buying influence; the tough part is knowing how to achieve this goal.

How can companies drive this new process forward?

Get Senior Management’s support of change efforts: To become a strategic spend procurement group requires the leadership of top management, a company-wide commitment to share ideas and expertise and a defined goal. To gain acceptance, fostering the internal drive for change of how the company acquires its products or services must be supported at the executive level.

Develop Cross Functional Teams: Identify key stakeholders to develop clear plans, project goals, savings and each team member needs to be assigned clear roles and responsibilities. Create a mechanism for reporting back to senior management on the progress made by each project team.

Identify and mitigate areas of risk: This could include team management, market issues, implementation challenges, or supplier financial health.

Map out clear implementation path: Recommended execution strategies must not be a one-time occurrence or have a one-year impact. Your goal should be to create sustainable improvements and savings. The first year of implementing a new procurement strategy will be mostly tactical. Companies will need to expect suppliers to commit towards working with them in pricing, delivery, quality and other measurable criteria. Strategic changes will happen in the second or third year of this new process.

For more interesting thinking on procurement, visit the GEP Knowledge Portal

Voices (2)

  1. Edward:

    You have no leverage, either win win or lose lose. lose win is just delusion; since lose is just that either way.

  2. Navdeep Sidhu:

    Silos will be the death of us all! One hand has to know what the other is doing, especially when it is costing your company money. Miscommunication makes it that much harder to keep an eye on all the moving parts of your business.

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