With the present and difficult economic conditions, many companies are looking to reduce costs through remodelling their supply chain. This process usually involves some degree of hard cost cutting in an attempt to improve margin, but should it all be about price?
Choosing the right supplier
A team of professional procurement experts often conducts supplier reviews. Although the selection criterion for many companies has moved on considerably in the last five years, there is still a heavy emphasis on price. Price is a significant factor, yet there are also many other factors such as quality, reliability as well as the harder to measure entities such as the advice and consultancy that comes with a strong and well-established relationship.
In difficult times, when costs are under the spotlight, it is important to measure the full value of a relationship with a supplier. All options should be explored, including moving many of the advisory functions that are held internally, across to a strategic partner.
Outsourcing niche capabilities to existing suppliers is less risky than outsourcing whole capabilities to third parties. The outsourcing companies are very astute at managing the process and contract negotiation in order to produce significant “in life” contract value and what can appear a good deal on paper, needs to be driven down into the operational weeds of the service provision. It is at this level of analysis that unforeseen costs can often be incurred.
Outsourcing niche capabilities to an existing supplier can work through mutual benefit. Firstly, the supplier has a relationship that they wish to protect and secure (therefore they are more likely to work for the mutual benefit of both organisations) and secondly, the capabilities they are often absorbing are with people they have enjoyed a business relationship with previously. Finally, the partnered organisation will have a fairly detailed understanding of the business, as they will have been working with for them for some time.
Taking a long term view
By organisations taking a long-term view and investing in strong relationship with suppliers, they can improve organisational efficiency and create more flexible operational capabilities. Adopting a more strategic view of the supply chain allows suppliers to invest in capabilities that aid the performance of the organisation. Suppliers are more likely to build capability when they know the relationship is valued and has a long-term perspective.