May – 2010 HCMWorks Launches Blueprint Series of “How To” Procurement Strategies

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Procurement has played a key role in meeting their companies’ ambitious cost-cutting targets over the past several years. Utilizing recurring negotiations with suppliers, buyers have achieved repeated discounts. But as deals with suppliers have matured and the economy stays unstable, negotiators are finding it increasingly difficult to replicate earlier wins. Buyers face continued pressure from their companies to continue to drive down costs, they are increasingly    resorting to high-pressure tactics to squeeze more concessions out of suppliers.   At what cost to long-term, sustainable savings and continued product/service quality?

For some companies, this “zero-sum” approach continues to deliver the goods    (at least for now), but for many such tactics are failing. These tactics are failing to deliver the targeted cost savings, product/service quality suffers, suppliers ability to stay viable is jeopardized by revenue impacts, and innovation is compromised on both sides as cost becomes the primary focus.

A less adversarial approach is needed, one that views suppliers strategically, as valuable assets of the extended enterprise rather than merely cost centers. How can procurement groups forge more productive relationships with suppliers, particularly when current cost-cutting programs are bogged down? By analyzing suppliers strategically, buyers can determine the extent to which the supplier contributes to the company’s core competencies. Segmenting suppliers and delegating more time and expertise to strategic relationships provides companies with an improved ability to achieve business goals.

As a company develops into a capable global competitor, it often restructures its supply base to optimize competitive advantages. The primary focus of the restructuring effort should be on the reduction of total cost, not purchase price. In addition to reducing total cost, improvements in supply base service, quality, reliability, and access to technology are also achievement goals.

This paper is the first in a series of four instructional white papers to explore the constructs of developing an effective Supplier Management Program by focusing on the following core components: Supplier Segmentation, Risk Management, Metrics Management, Expense Management, Performance Management, and Demand Management. In this paper we will review the benefits of establishing a Supplier Management Program and how Supplier Segmentation and Risk Management are the first components to attaining sustainable contract and above contract savings.

The Supplier Management Blue Print release schedule, which will addresses the remaining components of implementing a comprehensive Supplier Management Program, will be:

Release 2 – Assessing Supplier Performance:  June 2010

Supports procurement staff in developing metrics and dashboards to critically assess supplier performance

Release 3 – Driving Continuous Supplier Improvement:  July 2010

Supports procurement staff in developing metrics and dashboards to critically assess supplier performance and ensure that the measurement process is efficient, consistent, and transparent

Release 4 – Collaborating with Suppliers to Create New Value:  August 2010

Assists Procurement in building collaborative partnerships with suppliers and between suppliers that drive value and innovation beyond the contract.