Full Value Buying – Moving Beyond Price Negotiation

VL01D336R8We are pleased to publish a new Spend Matters briefing paper today, written by our Managing Editor Peter Smith in conjunction with the Business Development Director of Comensura, Jon Milton,  Comensura is a vendor-neutral managed services provider focusing mainly on the contingent (temporary) labour market, with clients in both public and private sector.

The paper is titled Full Value Buying - Moving Beyond Price Negotiation. That’s a fairly clear title, and the authors do indeed look at how buyers can achieve better results by focusing on more than simply purchase price. Whilst that seems like a fairly obvious statement, too many organisations, procurement managers and indeed budget holders still place too much emphasis on the headline cost, rather than looking more widely at all the key factors. The paper outlines the different factors that go into establishing whether any purchase is truly value for money, and considers how competitive advantage can be obtained in every possible case.

So for example, demand management is one of the most powerful tools in the spend management armoury. That does not simply mean putting a ban on booking foreign travel. It might mean being more structured around contract renewals in some categories, where often initial contracts are continued after initial expiry, without anyone checking and challenging the continuing demand and spend.

Throughout the paper, general ideas and concepts are supplemented by specific examples from the contingent labour market, showing how better value can be obtained by effective management. Here is an excerpt from the paper; we’ll have more to come over the next couple of weeks. And you can download the paper free on registration here.

 Full Value Buying - Moving Beyond Price Negotiation (an extract)

“If we consider the full value that the organisation obtains from whatever it is it is buying, there are two sides to that equation. There is the total cost of what is bought; and then there is the output or the benefit that is obtained from it. Put those two factors together, and we get the true value of what is being purchased.

It is clear that this value is what procurement and everyone else involved in the procurement process should be considering. However, it is easy enough to state that; it is much harder to actually implement procurement strategies, processes and approaches that support the concept.

But one useful place to start is in looking at the drivers of that value. To simplify matters in this paper, let’s consider a relatively “steady state” purchase. So there are another whole range of value opportunities that might be broadly described as coming from supply side "innovation" (such as the contribution suppliers can make to new product development or market entry) but we will leave that topic for another day and another paper.

At a high level, we can consider that the value drivers include areas such as;

  • The purchase price
  • Whole life cost factors outside the purchase price
  • The specification of the item
  • The demand (quantity purchased)
  • Transactional costs
  • The performance / output / benefit gained from the item purchased

If we look at each in turn, we can identify how those drivers play a significant role in the overall value equation, and suggest approaches that buyers could take to improve the value that is obtained”.

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