Understanding Supplier Pricing

There was recently a two part interview on SCDigest with Ed Marien, emeritus professor at the University of Wisconsin and director of its Supply Chain Logistics Management program. During it, I found some interesting quotes about the sourcing dynamic in some of his answers.

First off, he feels there is a talent and training issue with many buyers not understanding or bothering to breakdown the total cost of ownership. This is somewhat shocking to me because almost every buyer I know does this regularly. In reading that, it seems likely that procurement teams that have invested in, and use, eSourcing technology are more skilled and progressive than some of their SMB or less mature sourcing brethren.

Marien also points out that many procurement teams are stretched to thin, as well. Expediency becomes more important than anything else. This is another classic benefit of eSourcing and shows where an investment in technology would allow the same number of buyers to source more projects, instead of re-order processing.

He also quoted saying, “As you get into more complex strategic sourcing relationships, it takes a higher skill level and also a higher level of teamwork to make the right decisions. Purchasing and Supply Management specialists need to understand the role of total costs and not just prices in making sourcing decisions. Various alternative cost models depend upon how firms are strategically sourcing products and services. The payoff can be huge if buyers gain understanding of alternative price/cost models.

The bottom line is to assess product/service criticality with the goal of calculating the value and payback of moving from commodity-type buys of products and services to strategic sourcing. Strategically, top management must review their buying processes and determine if they will allocate resources to strategic sourcing with suppliers for cost efficiencies and/or competitive advantages.”

It’s a pretty interesting interview and not one of the typical backslapping types that make everyone look smart.

Still quiet here.sas

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