Sourcing Strategies in Today's Environment — Lessons from the Metals Markets

I'd like to welcome Lisa Reisman to Spend Matters this morning. Lisa usually writes for Spend Matters affiliate blog MetalMiner. I asked her to contribute her thoughts about lessons that we can all draw from the current sourcing environment in the metals industry and categories. In full disclosure, Lisa is also the wife of Spend Matters Editor, Jason Busch.

Rising metals prices, commodity volatility, and a declining dollar could make some purchasing professionals throw their hands up in the air. But for some, trying times make for new opportunities. Here are a few strategies successfully deployed in recent months with excellent results:

The first strategy involves the re-evaluation of global sourcing decisions. Companies are out qualifying new suppliers and re-engaging in conversations with suppliers whom they previously did not award business. Total cost build-up models and landed cost models are en vogue as a means of comparing FOB bids. The variables are moving quickly... duties, export tariffs, currency exchange rates, freight and logistics costs etc. A price that appeared not workable 12 months ago may be within striking distance now on a total landed cost basis. The quoting and re-bidding process is in full gear for many firms.

The second strategy in volatile commodity markets calls for the switch from sole source to dual-source or tri-source strategies. Move from sole source scenarios to dual source (at least), particularly in rising cost markets to gain leverage with incumbent suppliers. We have frequently seen substantial cost increases levied by sole source suppliers. When additional suppliers are brought into the mix, more fruitful discussions ensue with incumbents which also coincidentally yield cost avoidance that otherwise would not occur.

Finally, making oneself a sexy buyer creates opportunities. And just think, you can do it without hiking up the hemline! Buying organizations can still extract cost avoidance dollars by being a good customer. What do we mean by that? Taking a page from the sales folks, buying organizations even in supplier markets can create interesting opportunities for themselves by deploying (where possible) any one of a number of strategies such as:

• Aggregating internal and extended supply chain purchases to create leverage - discounts in exchange for added volume
• Though sole sourcing in rising commodity markets increases risk, further consolidating suppliers to increase leverage often has the opposite effect
• Paying early in exchange for payment discounts

These may not be rocket strategies but for those that are deploying them, the results are irrefutable. And as we like to say around here, something is better than a stick in the eye.

-- Lisa Reisman

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