Spend Matters welcomes this guest article by Mike Robertson, managing director at POD Procurement.
“Procurement savings are negotiated pre-contract award and realized during post-contract delivery.” It’s a statement I hear all the time, but it’s only half correct, procurement savings are a pre- and post-contract activity. Post-contract savings are achieved through supplier innovation – or to put in another way, by the supplier delivering the contract for less.
“In most contracts, if a supplier identifies a way to deliver the contract at a lower cost during the Delivery Phase, they rarely have an incentive to let the buyer know.”
Innovation could occur at any time between contract award and final delivery, the principle of supplier innovation is the supplier utilizing their expertise and knowledge to deliver the contractual requirements at a lower cost to the buyer. To encourage suppliers to innovate requires a model that encourages and rewards suppliers.
- Supplier Innovation occurs after the contract has been awarded and therefore is impossible to predict which contract it will occur within. As a result, it must be applied to as many contracts as possible.
- Must offer a mutually beneficial financial outcome for both buyer and supplier
- Delivers a scalable solution without incurring additional business costs for either buyer or supplier
- Without introducing additional risks for either buyer or supplier, a reward-only model
- Provides clear and predictable financial outcomes for both buyer and supplier
- Simple to understand and utilize, yet delivers
This may seem like a far-fetched list of requirements, but the reality is that it already exists yet you may not be aware of it. The solution is called The POD Model and is available today:
- The POD Model is universal in nature and can be inserted into most contracts
- Provides mutual and predictable financial benefit for buyer and supplier
- Simple to utilize and is scalable
- The POD Model requires no pre-contract negotiation
- Provides a permanent incentive in every contract, without additional risks to either party
- To utilise the POD Model requires no tools or technology, just a understanding of how to apply the Model
- The POD Model is free to use
- Providing annual sustainable savings for the buyer with the support of the supply chain
“For every $10 billion of annual supplier spend, achieving just 3% supplier innovation across all contracts using the POD Model, provides the suppliers with additional profits of $75M and $225M of additional savings to the buyer,
without any additional risks to either party”
Summary: The POD Model is a scalable solution to increase the supply chains contribution to bottom-line profits and opens the door to access the savings that for many organizations remain “untapped.” The POD Model also addresses another hot topic in industry supply chain sustainability, by creating a mutually rewarding model that provides an injection of additional profits into the supply chain as they generate additional savings for the buyer.