Procurement, always a critical cost center in company operations, is changing, and for the better.
No longer is procurement simply about brow-beating suppliers for lower prices. Companies that are most effective and efficient in procurement now approach it as an integrated and collaborative company function, involving such processes as purchasing, marketing, storage, distribution, production and quality control.
It's all about the information. Do you know precisely:
This kind of information, and much more, is critical to today's procurement professional. Buyers typically start every procurement relationship at a disadvantage, and this is especially pronounced when the supplier is the only supplier available for a needed product.
Buyers already manage far more in relationships and products than most of their vendors, who have smaller client bases. This allows the vendor to develop better market intelligence and inside knowledge about the buyer than the buyer has about the vendor, reducing the buyer's negotiation leverage.
To get around this inherent deficit, it is important for procurement staff to have easily accessible, current information about procurement activities and needs, and also the larger procurement market. Particularly in the case of a sole supplier of a product, better information is the only source of negotiating power for a buyer.
That information can come from multiple sources. A key one is called "spend mapping." It segments procurement activities by product and supplier and provides insights into negotiating stances that can be used with suppliers. It also can identify products and suppliers that place the company at greatest risk.
It can be important, for instance, to know where product bottlenecks exist and where the highest costs occur. All of this, then, provides opportunities to expand negotiation beyond price alone. That can include working with suppliers to mitigate risk in the supply chain, reducing such non-price costs as packaging or seeking such additional services from suppliers as production advice or product storage. In some cases, it also can provide information to improve one's negotiating position related to a key product that is available from just one supplier. When that sole supplier is found to carry other products, the opportunity for the seller to gain additional business can be leveraged to get the best deal on the key product.
A common problem with developing an adequate spend mapping tool is that company information systems often are not set up to respond quickly to requests for data that can be most important to procurement. Further, large companies often have multiple systems that may not speak to each other.
But it is possible to draw standardized data from various systems and merge it into a powerful spreadsheet-based tool for quickly analyzing procurement activities, vendors, products and so on. With such information, procurement professionals are staged to take their negotiations and results to the next level.