The Impact of Limited Options in Procurement
Procurement strategy can be a challenge when many of the traditional options are limited.
Wouldn’t our job be easy if every product or service had multiple vendors or suppliers ready and willing to compete for your business?
I was recently helping a client identify areas where a structured purchasing policy would yield lower costs without impacting service or quality.
As we reviewed different spend categories they let me know that they were not interested in seeking alternative bids for several very significant services they contract for annually.
This isn’t the first time I have encountered this situation and it made me realize that there are many factors that might prompt an organization to choose this approach.
Here were some questions related to the vendor’s operations and employees that should be considered before seeking competitive bids:
- What level of understanding of your company’s operations is necessary to properly deliver the service?
- How many hours of training on your operational policies and procedures does each employee complete annually?
- What type of security or background checks are required prior to assignment to your account?
- What criteria is used to evaluate performance?
- What is the length of service on your account for each employee?
- Is there an approval process in place before new employees are assigned to your account?
- Are employees required to sign confidentiality or nondisclosure agreements?
- How strong is their relationship with your top people?
There is a learning curve for each new account and part of the evaluation process should be the cost to change. All of the factors listed above should be quantied in terms of time and staffing by your organization. Once that determination is made the amount should probably be doubled because these are very difficult factors to zero in on.
There is clearly a value that a vendor familiar with your operation brings.
I am aware of one situation where a company regularly brings in a third party to take care of certain service issues with a primary vendor. The vendor has a strong realationship with the CEO. The overall value the vendor brings justifies the additional cost to handle issues outside of their skill set.
What happens when service begins to slip? What is the tipping point when it becomes apparent that a change must be made?
It can be easy to put up with some nagging issues rather than go through the effort to find suitable new vendor. At some point change will be required.
Knowing all of the soft factors that are required to service your organization will allow procurement to properly vet prospective replacement vendors.
Action Step: This type of analysis is vital and achievable with a plan. The answer won’t be exact but the 80/20 approach should be good enough. If these challenges sound familiar, take the first step and gather the information. The next steps should be obvious. If you need help there are many qualified professionals like myself that can help you implement the changes needed.
EC Sourcing Group is one of the companies I represent because their tools have been created by dedicated and experienced sourcing professionals. They know the day-to-day challenges your team faces and have built their tools to solve them. If you want to know how, I invite you to request a demo or 30 minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at 973-936-9672.
Next week I will continue on this same theme so your organization can improve your bottom line.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life