As we finish up the holiday season
by ringing in the New Year, many of us will come to the stark reminder that the
New Year brings new company procurement initiatives, challenges, and goals. While many of
those company goals don’t necessarily need to materialize for another 12
months, I’ve always felt that the start of a new year signifies a time where
people are most ambitious both with their personal and professional goals. To
capitalize on this new source of ambition and optimism, I’ve provided some
proven procurement action items that work best at the start of a new year.
1.) Lend an Ear to
your Suppliers
Procurement Departments often
implement what I like to call the “take, take, take” approach – by continuously
beating up on the suppliers in the form of additional demands or year-over-year
(YoY) price reductions. What I suggest is starting the 2020 year by holding a
meeting with your major/key suppliers and asking how YOU, the customer, can
make their job easier. Often this may come to a surprise to the supplier, as
the roles are often reverse. I like to ask the Suppliers about their internal
procedures, any new technological enhancements and specifically the process of
payment processing, an often overlooked area in terms of internal costs. I
recently went through this activity with a client’s supplier and was able to
reduce a client’s reoccurring Preventative Maintenance Service pricing by 12%
by simply setting up an agreed-upon once-a-month, 12-month flat rate invoicing
schedule. Before this, the supplier was sending up to 60+ invoices a month,
each requiring a customer approval, oftentimes delaying the supplier receiving
their payment. With these issues now resolved the supplier was willing to lower
their service pricing as they were no longer wasting time and resources
compiling, reviewing, and correcting numerous invoices.
2.) Review
Supplier’s Metrics
The start of the New Year provides
a good opportunity to review your key supplier’s performance metrics. One
metric I like to discuss with Suppliers is their YoY sales growth/decline.
Regardless if the supplier experienced a sales growth or decline, I like to use
this metric to gauge a supplier’s interest in offering a Sales Growth rebate –
a rebate percent (%) or dollar ($) amount tied to the supplier achieving a
certain dollar amount or growth in sales. One thing Procurement Professionals
tend to overlook is that Sales Reps/Account Managers are typically measured
internally on their YoY Sales growth metrics – establishing a sales growth
rebate clearly shows your suppliers you are willing to align your goals with
theirs.
3.) Push back on New
Price Increases
Generally during/before the holiday
season, when most professionals are winding down from the busy year or finally
utilizing their PTO, Suppliers will announce upcoming “price adjustments” or in
other words – a price increase. Often these price adjustments are typically the
result of inflation or manufacturer increases resulting in the price increase
of a commodity. In the case of suppliers utilizing the argument of commodity
price increases, I suggest requesting data about the commodity and time frame of
the commodity increase. I’ve found that the simple act of requesting this data
may deter the suppliers from increasing their pricing. In my own experience,
I’ve been able to successfully argue that the price increases were not
justifiable. Most notably, a Non-Destructive Testing (NDT) supplier came to a
client of mine proposing a 5-10% increase due to their raw materials pricing
increasing as the product (X-Ray films) was heavily reliant on the price of silver – along with the announcement they included a 1- year chart
of the silver price/oz. of which conveniently presented a staggering upward
trend. Before allowing the client to agree to the supplier’s price increase, a
quick Google of a 5-year silver found that in the year prior to the supplier
provided a chart, the price of silver dropped 33% yet the supplier did not
lower pricing the following year, but in fact, increased pricing by 2-3%.
Utilizing this argument, that the supplier failed to decrease pricing when the
commodity pricing decreased, we were able to successfully eliminate the price
increase resulting in over $100,000 in cost avoidance savings.
While the start of the New Year may
seem like just the beginning of the road to your 2020 goals, implementing these
actions early on in the year, may make for a little less stressful Q3-Q4.
