5 Procurement Strategies for Better Supply Management
The Business Challenge
The company is one of the major suppliers of power generation services in the United States. Being a global energy major, the company felt the need to identify the right negotiation levers to drive cost reduction in direct spend by conducting a detailed analysis of various drivers of part cost. They decided to collaborate with SpendEdge and leverage their supplier management solutions to reduce purchasing costs and increase the efficiency of their supplier management process. The key challenges they were looking to address through supplier management solutions were:
- Increase in purchasing prices: The company’s parts & repair business started witnessing an increase in purchasing prices of its parts due to poor supplier management process. This started eroding the contributing margins of the company and started creating challenges for the business.
- Traditional methods: The client accepted “low-cost bids” in finalizing part costs and lacked the efficiency to defend the price requests from suppliers due to poor negotiation levers and supplier management system.
The Business Challenge
A process manufacturer of industrial materials based in North America had a business objective to maximize shareholder value of the company. Their prime focus was to improve profitability and asset utilization, with a productive P&L and balance sheet. The company’s products were on the edge of being commodities without offering much product differentiation from competitors. The primary means of gaining and holding market share was quality and this required them to enhance supply management.
Additionally, the company was vertically integrated and had limited sources of raw material in most of the major product lines. This meant that the company often had to enter into long-term contracts with vendors to ensure supply and operate facilities to capture byproducts from other industries’ processes to obtain material. The quest for increased profitability compelled the company to engage with SpendEdge and determine cost reduction opportunities in every part of the company while improving the supply management process.
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The experts at SpendEdge worked closely with the client to analyze strategies and identify alternate approaches to provide a realistic assessment of risks and ensure that the client receives the best value-for-money. They consolidated suppliers within specific supply markets, reduced purchasing and supplier management costs and increased the efficiency of their supply management process.
Prior to this collaboration with SpendEdge, the negotiating opportunities didn’t exist for the client as they competed for material in the constrained marketplace, so vendor price negotiations and seeking of large-scale, free, value-added services were not considerable options. Moreover, all of the inventory was sold, and it was taking time to place it, which was resulting in poor margins for the client. SpendEdge’s supply management services helped the client to work with stakeholders without being tied to any one supplier. This helped them to identify suppliers who can offer the shortest lead time and the most competitive pricing among the available sources. The supply management strategy offered improved the production process and helped the client to
- implement effective demand forecasting functions in the divisions.
- establish documented procedures for forecasting
- inventory planning and management.
- production planning.
In a span of six months, the supply management strategy devised by SpendEdge resulted in the reduction of inventory carrying costs by approximately $0.7 million per year on an investment of $200,000. The business process implemented further redesigned warehousing process and offered additional corporation-wide transportation savings.
Deployment of supply management strategy helped the client to gain detailed insights and change the supply management policy so that customers can receive continuous supply. This redesigned their customer service process and improved brand value by ensuring timely delivery of products. In addition, the supply management solutions lowered supply-chain costs and boosted their overall profitability.
How Does Supply Management Work?
Supply management is a business process that involves the coordination of pre-production logistics and inventory management. The key aspects of supply management are oversight and management. It involves oversight and management of suppliers and analyzes their contribution to the company’s operations. An effective supply management process includes:
- Identification and procurement of goods and services that are crucial to a company’s ongoing operations.
- Establishing supplier management process to improve relationships with suppliers.
- Implement procedures that facilitate the procurement process.
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The Business Challenge
The client, a leading supplier of sporting goods with outlets spread across different regions in North America, was facing predicaments in ensuring the supply of materials and services. Their traditional process of obtaining and managing raw materials was inefficient, especially when it came to reducing their splurge and streamlining inbound logistics from different countries. This was resulting in substantial losses for the company and was also reducing their efficiency when it comes to improving the bottom line. The client, therefore, decided to collaborate with SpendEdge and leverage our expertise in offering actionable supply management services.
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By analyzing the current market scenario, risks influencing proft margins, and new market disruptions, the experts at SpendEdge focused on developing better supply management capabilities for the client. They conducted a comprehensive market research to obtain accurate real-time insights and determine appropriate supply markets for procuring products at the right prices.
The strategic approach adopted by our experts helped the client to take critical decisions related to suppliers. These decisions involved the identification and classification of capable suppliers, negotiation of the specific purchasing item, price, payments and volume, contracts, supplier development, and analysis of suppliers’ financial condition. Such an approach allowed the client to make better purchasing decisions while identifying key factors driving prices. Moreover, this highly focused approach helped the client to reduce two-third of its revenue, which was spent on buying goods and services, and enabled them to select appropriate suppliers.
Implementing SpendEdge’s supply management strategy helped the client to obtain detail information on supplier landscapes from specialized databases and prime cost benefits associated with them. This helped them to select the best cost sourcing locations and understanding prime cost advantages. Furthermore, the strategy helped the client to reduce excess spend, make efficient use of resources, and improve the business cost structure of the company.
What is the Importance of Purchasing and Supply Management?
Since organizations are spending more than 50% of their turnover on supplies, purchasing and supply management is becoming crucial for companies to stay competitive. They need to select and manage their suppliers efficiently to ensure the timely supply of materials and services to meet companies’ strategic plans and add value to their businesses. With a potent supply management strategy in place, companies can identify the needs of an organization and get the most profitable agreements in place. Additionally, a proper supply management system helps companies to avail the goods at the best prices while maintaining a cordial relationship with suppliers.
Ensuring the smooth supply of goods and services can be a taxing job for companies. Contact our offices below and know how our supply management solutions can help your organization to address such issues.