E-Sourcing Forum » Squeeze Suppliers for Juicy Savings?

Squeeze Suppliers for Juicy Savings?

November 13th, 2006 at 04:34am Sean Delaney - Iasta UK

Whilst researching some articles for a blog I came across this piece again. When I initially read it I thought I’d seen it before somewhere….and yes I did about 15 years ago!

This article is based on a survey of 325 purchasing heads across Europe and the US. It peddles out the usual statistics, which are valid and worthy of note:

59% of purchases are still “off contract”
Services are most ripe for cost reduction
More Innovation is required within the purchasing department i.e. more use of technology

What I am more surprised about is that this survey made the national papers with headings like “squeeze suppliers for juicy savings”. The underlying theme of the article is that organisations need cut suppliers and renegotiate contracts.

This is all simple stuff however the article offers nothing in the form of what innovation is required (Spend analysis, eSourcing and Contract Management). It also offers nothing to suppliers about the benefits to them.

I think it shines a poor light on procurement practices. I also believe that with innovation in the supply chain there is an argument to say that there comes a point where you no longer need to reduce the number of vendors. In fact that point may now be a higher number! For example with good spend analysis the number of suppliers may well be irrelevant…..after all why cut off the source of innovation in the supply chain?

Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Supply Management Best Practices, e-Sourcing Marketplace

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6 Comments Add your own

1. Eric Strovink | November 13th, 2006 at 1:16 pm

Precisely, Dave. In some verticals, such as contract labor, one supplier might give you the best price for a particular job category (e.g. Java Programmers I-IV) but fall down on the job when it comes to accounting temps.

Furthermore, that same supplier might be great in New York in terms of price or flexibility for a particular job category, but abysmal in Chicago. The right mix of suppliers for the right commodities, combined with spend visibility and good integration of contract information into the spend cube, means that bypass spend can be tracked precisely — and optimal results achieved.
2. David Bush - Iasta | November 13th, 2006 at 1:23 pm

Thanks for the comment, Eric. I would gladly accept your praise but Sean actually wrote this, so I cannot take credit!
3. Eric Strovink | November 13th, 2006 at 2:45 pm

Oops! Sorry, Sean!
4. Sean Delaney - Iasta UK | November 14th, 2006 at 5:31 am

Eric thanks for your comments. Your example of the contract labour is even more relevant when you try to apply the same supply solution accross many countries i.e in Europe.
5. Doug Cooper | November 17th, 2006 at 2:45 pm

Agree wholeheartedly with your observations. More suppliers? Why not? As long as the cost to manage them ( in terms of Supplier Management and product / service TCO) decreases while the number increases.

For more than a decade I’ve been a proponent of Procurement Departments approaching a Market, not a set of suppliers. In making a market, a innovative buyer/sourcer will build the lowest cost/highest value transaction base with his supplier. Ultimately, a favorable marketplace will ensure optimal, long term relationships or the flexibility to build them. Reducing the numbers of suppliers is “set of supplier” thinking, not necessarily where efforts are at all productively placed.

Squeezing Suppliers is unfortunately a standard practice in many companies. This merely produces a short term effect and forces one’s trading partner to optimize its marketplace by finding another buyer,

I say its time for Supply Management to update their Market Practices, not their purchasing practices.
6. Sean Delaney - Iasta UK | November 17th, 2006 at 4:11 pm

Doug many thanks for taking the time to add your thoughts. I think this subject has touched a nerve and we certainly need to revisit again at a later date.