APPLYING THE RIGHT LEVERS TO FIND THE MOST VALUE
To source the most valuable suppliers and drive the best category strategy forward, procurement teams should consider seven key levers and address the ones that are applicable to each category. (See the exhibit.)
The first lever—digging in to the supply base—will be relevant no matter the category or type of business. Consider whether the relationship has been steady and reliable in terms of quality, cost, and delivery. And gauge the supply market overall, taking into consideration how competitive it is, whether it’s an oligopoly, if there are new entrants in the market, and whether there have been any mergers and acquisitions that could affect future prices or service.
The other levers depend on the category. Let`s say a team is creating a strategy for the purchasing of corrugated boxes. The first lever and the second—bundling—would be useful in making sure the business is using the best suppliers and getting the best prices. The third lever—location—might lead to a closer supplier, reducing shipping costs and time. The team could use lever five—process improvement—to make forecasting, delivery frequency, or inventory requirements more efficient. The sixth lever—optimizing specifications—would get the team thinking about the sizes and specs of the boxes, ensuring that they are not overengineered.
It`s easy to fall into a supplier relationship that feels comfortable because it`s what the business is used to and sometimes brings perks that the team counts on—tickets to sporting events, for example. And it’s common for procurement to rely on the same negotiating approaches with these suppliers. (See the sidebar, “Bringing a Category Strategy to Life with the AI Negotiation Coach.”) By being closed to new suppliers and approaches, companies limit their options—and not just on price. They may be missing out on greater quality, convenience, or innovation.