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Economic downturn? Put pressure on your suppliers

The most effective key to cutting costs spent with third party organisations, is proficient market testing. Prioritise your efforts on substantial spend areas, where there are numerous viable vendors, and you haven’t recently market tested.

A number of your spend areas may be difficult to market test. There are usually two viable solutions to this problem:

 

1. Attend courses focusing on specific markets. The Chartered Institute of Purchasing & Supply, CIPS http://www.cips.org/ runs many such courses; or
2. Have a specialist in the field market test on your behalf. For utilities, try the Energy Information Centre, EIC, http://www.eic.co.uk/, or one of their competitors.

Other tips for cutting costs:

• Invest in a good negotiation course, such as those run by CIPS;
• Be unreasonable in your demands from vendors;
• Meet current and potential vendors to see how the specifications of goods or services might be modified, to reduce prices;
• Develop a contract register, to enable you to start market testing well before current contract expiry;
• Use interims or consultants to develop and execute a cost reduction programme;
• Ensure you are paying vendors no more than you should be, contractually;
• Upon receiving a price increase proposal, whatever its basis, threaten to market test if the increase proposal is not withdrawn, or much reduced;
• Concentrate business with fewer vendors, to leverage your spend. Consider dual sourcing or even single sourcing;
• Cut out middlemen, deal with companies as close to the ultimate source as possible;
•  Consider all costs associated with a purchase before making a decision, such as labour, consumables, energy consumption, warranty… ;
• Consider lease rental of capital equipment, rather than buying;
• Consider buying from overseas vendors;
• Consider buying through ‘reverse auctions’, e-procurement;
• Consider outsourcing, and insourcing.

 Good luck! 

Mike Buchanan is founder and Chief Executive of procurement consultancy LPS (http://www.lpsconsulting.co.uk/). He has more than 25 years senior-level experience both in the private and public sectors. He’s the author of Profitable Buying Strategies, published by Kogan Page. 

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Story added Oct 24, 2008