Lower margins and shortening supply chains put increasing pressure on your procurement team to deliver value. Data transparency and supplier management tools increase the efficiency of your team and future-proof your supply chain.

1. Cost savings: Implementing collaborative supplier management can realise savings when leveraged strategies have dried up.
2. Reduced admin. Supplier management portals ensure that every transaction is optimised
3. Long term savings. Optimising the internal supply chain function drives long-term benefits

When leveraged negotiation has reached its natural limit, then collaborative cost reduction can realise further gains.

Supplier Collaborative Cost Reduction

As organisations develop the capability and sophistication of their procurement functions, opportunities to drive out additional savings by focussing exclusively on price will eventually begin to plateau. However, by shifting the focus of procurement from price to cost, new saving opportunities become increasingly possible.

In recent years, some of the most successful savings projects have been delivered through direct collaboration with strategic suppliers, utilising an approach known as Supplier Collaborative Cost Reduction (SCCR).

Focus on supplier cost – and bring down the price

Shifting the focus from leverage to strategic

Procurement development is a journey. In the early stages of development organisations can achieve benefits by reducing the price they pay for goods and services through commercial leverage techniques such as negotiation, tendering, and eAuctions – techniques all relying on the fundamental commercial lever of competition.

For spend categories and suppliers where adequate competition exists in the supply market and internal and external restrictions are few, the market provides the best mechanism by which to drive down prices and deliver savings. The same techniques can (and should) be applied on a regular basis; supply markets are dynamic and new suppliers, innovation and market competition will provide fertile ground for ongoing savings.

However, the law of diminishing returns applies. Whilst savings can be squeezed out with each initiative, it gets harder and harder and the actual level of savings reduces as we approach a theoretical limit at which suppliers will not reduce pricing further. The reason for the limit is that these approaches only affect supplier price; the supplier’s cost isn’t impacted and it is just their margin that is being reduced.

Where next after sourcing?

Taking procurement to the next stage involves a shift in focus from price to cost. The model below shows the evolution of procurement control over time. As a default, supplier’s costs vary according to their input costs and without professional management, supplier’s prices creep up with time. Once professional procurement becomes established the tactical techniques above work on that margin and bring prices back down. But what next? Where do you go when these categories have been “sourced to death”?

Contact us to discover how an initial complimentary assessment can identify savings for your business.


Supplier Collaborative Cost Reduction

Supplier Collaborative Cost Reduction (SCCR) is an externally-facilitated, structured and managed process which takes the buyer and supplier through a measured and analytical process to identify, quantify and implement a wide-range of cost reduction techniques.

The SCCR toolkit includes:

  • Value Analysis/Value Engineering
  • Commodity Cost Management
  • Total Cost of Ownership
  • Complexity Reduction
  • Buyer-supplier process and Supplier Cost-to-Serve optimisation
  • Logistics optimisation
  • Packaging optimisation
  • Wastage reduction
  • Vendor Managed Inventory
  • Asset Sharing
  • Design-to-cost
  • Tier 2/3 supplier sourcing
  • Joint sourcing initiatives
  • Reciprocal trading

  1. Supplier Collaborative Cost Reduction can deliver savings from high-value, strategic suppliers that have been previously untouched by traditional tactical sourcing
  2. Select the right suppliers – not all are suitable
  3. Use an external expert to facilitate the process and create the right environment for successful collaboration

FIND OUT MORE

Contact us to discover how an initial complimentary assessment can identify savings for your business.

Contact us

We build long-term partnerships with our clients that deliver ongoing cost reduction and continuous improvement in procurement processes that add value to the bottom line. If you would like to know more about how that works for your business then please get in touch: