Procurement Savings in Manufacturing: Transition Suppliers

This series of posts is based on content, ideas and recommendations from the following Spend Matters Perspective: Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation. In fact, some of this paper's content was first published 10 years ago by Jason Busch, David Jungling, and Jay Odell, who were with FreeMarkets (at the time). While adapted for today's manufacturing environment, the ideas represent a timeless look at a topic that few companies are fully addressing through their procurement practices today.

Let us begin by examining the question: How to transition business to new suppliers? This is one of the greatest challenges faced by procurement and operations professionals, yet often goes unstated. The proliferation of sourcing solutions and global markets has enabled organizations to efficiently identify numerous new, qualified suppliers, regardless of whether they're located in Camden, New Jersey -- or Xiamen, China.

In addition, especially within manufacturing, the past decade's continued focus on cost reduction has increased the outsourcing of parts and even entire process lines -- a trend that still occurs in certain markets, although re-shoring and new make vs. buy decisions are changing this in part. As manufacturers move to further de-capitalize, many close domestic production facilities and move businesses to get closer to end-customers in their local markets.

Each of these factors has contributed to a significant increase in the rate of new supplier adoption across the globe. These needs and goals run counter to earlier efforts to consolidate the supply base -- reduce supplier count--at times seemingly regardless of business impact. Current (2012) solutions make it far easier to effectively and efficiently manage larger supplier bases so today's sourcing professionals should not despair over the seemingly conflicting goals.

While an increased focus on cost reduction has led many organizations to identify cost savings through sourcing activities, only a few have been able to efficiently bring new suppliers on board to quickly realize the full value of their cost-cutting initiatives. An earlier analyst survey by Aberdeen (still directionally accurate), found that 60 percent of buying organizations were not able to fully realize the savings identified from online sourcing initiatives due to implementation bottlenecks. The cost to buying organizations that fail to implement sourcing savings is quite large. Between 1999 and 2004, FreeMarkets found that, on average, over 30% of savings from their projects were never implemented.

To be continued. Curious to learn more in the meantime? Download the full Spend Matters Compass research brief here in our free Research Library: Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation.

- Jason Busch

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