When looking at suppliers for your learning and development department’s equipment and service needs, the possibilities are limited only by your understanding of how procurement should work.
Usually, the primary limitation is knowing only a handful of suppliers and — project after project — going to those few suppliers to request pricing proposals. What you get is pricing based on what the supplier thinks you are willing to pay. This means that the supplier is in control and is basically telling you what you are going to have to pay based on when the supplier wants to do the work. That is traditional procurement methodology. This is the way it has always been, so few question whether there is a better way.
There is a much better way that will put you — the buyer — in control. It is the latest in procurement methodology. Unlike traditional methods, it expands and manages the pricing process through a comparison of requisite specifications and requirements to a database of supplier attributes — from pre-qualified and preferred suppliers, all of whom are chosen by the buyer and are willing to submit low bids to fill production downtime. These suppliers are willing to lower their fees in order to fill gaps in their production schedules with work that will keep staff employed, equipment utilized and revenue flowing. They know, by taking advantage of the new methodology, that a low bid will not be expected project after project, because the same supplier will not always have open production time for each and every project. That is why the buyer needs a supplier base large enough so that for any given project there will be at least one qualified supplier with downtime to fill.
Quality and delivery requirements will not suffer because suppliers in the vendor base are limited to those who have been pre-qualified to the buyer’s total satisfaction, based on a rigorous pre-qualifying process. Many will be suppliers with whom the buyer has established relationships. Every supplier in the vendor base is capable of doing the job for which that supplier has been selected to receive a bid. That minimizes quality as a risk-management concern.
Most suppliers welcome competing for work by lowering their pricing because this approach allows suppliers to fill production gaps that, if left open, would mean no revenue at all. Specifically, the average print supplier has about 30 percent downtime to fill at any given time. Those that have consistently used this new approach to supplying print are increasing their bottom-line profitability by 10 percent to 15 percent of revenue.
The outcome of this new methodology should appeal to every C-level executive, as gaining control in this way of the procurement of customized goods and services yields a measured cost reduction of about 42 percent. That is the average amount suppliers can comfortably reduce their prices in order to fill their downtime. With print, most organizations spend, on average, 3 percent to 5 percent of gross revenues for direct mail, marketing materials, commercial print, labels, product packaging and other types of customized print projects. Savings at the 30 percent to 40 percent level convert 1 percent or more of revenues to the bottom line.
The methodology works because it creates a pre-qualified supplier base; thorough project specifications; a controlled yet fair bidding environment; efficiencies that save additional time and money; and a mutual acceptance of the process by the buyer and all suppliers in its supplier base. Since every step of the workflow process is monitored by a computerized communication system, full transparency is established and all stakeholders are assured that the work is performed per specifications and on time.
The lesson learned from all of this is that successful businesses must stay on top of advances in procurement and other business methods and not be shy about embracing the change required to move an organization forward. While procurement may seem like a back-office support service, it is now on the front lines as CLOs look for every penny that can be saved to compete in an economy that is claiming business victims every day. Procurement is an area where there is substantial opportunity for savings. The first step toward realizing those savings is accepting the fact that traditional procurement methods no longer get the job done.Filed under: Performance Management