Saturday, April 4, 2009

What is the next big thing in Procurement?

What is the next big thing in Procurement?

Over the past 25 years, I have seen many changes in the Procurement field. Here are a few…

- Arms length business relationship (our-side vs your side)
- Initial software with purchasing systems that automate POs
- Use of learning-curve theory to drive down pricing year over year
- $1000 government toilet seats and $75 ashtrays because these things required “R&D”
- Vendor entertainment, gifts (bribes?), personal relationships off the books

- Win-Win approach to negotiation
- Emergence of purchasing modules in ERP systems
- Title changes from Buyer and Purchasing Agent to Procurement Manager
- Use of consultants to help with spend analysis
- Increased acknowledgement of Procurement as a part of the broader Supply Chain

- Adding value to negotiations through trades
- Non-production spend analysis and solutions
- Control over maverick buys through software
- China sourcing (low cost country sourcing and production
- Coordination across the Supply Chain

So over 20 years we’ve made progress on capturing and implementing best practices, automating and auditing. But we are all still learning how to develop and execute the best relationships with vendors. We still have much to learn about negotiations … and I am not talking about how to squeeze the last dime out of a vendor. We need to learn how to add value to the deals and how to build strong and strategic relationships over time.

If we take the high ground and focus on value, not price, we take the first step in the right direction. This is a significant change for Procurement professionals, but an important directional progression.

Saturday, March 21, 2009

Cost Cutting with Vendors

Lately I have been reading a lot of stories in the press about how to squeeze every last drop of blood out of every supplier because, we are after all, in a recession. During these economic times, companies are asking suppliers to take price cuts with no concessions just because they need to cut costs.
This is an unproductive approach. I understand the need to cut costs, but this must be done in the spirit of a trade. To preserve the long-term relationship with your supplier, you must focus on keeping the economic balance between both parties. This can be done through trading for something of value.
If you want your current suppliers to cut costs, then offer a free-to-you concession such as endorsing them to your colleagues in other divisions or other companies. Or how about sponsoring them for a speaker’s slot at the next NAPM Round Table? These things are free to you, but can be quite valuable to your vendor.
Focus on trading for something that’s valuable to your vendor and that will ease the pain of a price concession. Let’s help each other through these tough times.