When organizations are looking to find cost savings, they often start by reviewing their current expenses.
But another approach that can effectively increase your organization’s cost savings potential: revisiting your supplier relationships. Organizations that work with their key suppliers as “partners” and not “vendors” can benefit greatly. They have leveraged their supplier relationships to reduce costs and streamline their operations, both of which result in costs savings of 20 percent or more.
So, how do you do that?
Make sure you have a dedicated account representative and meet with them on a regular basis (at least every 3 or 6 months depending on the nature of the spend and supplier relationship). Talk about your account and what you could be doing to maximize your savings and streamline the operation.
During your meeting, be sure to review:
Current pricing structure
Does your current pricing reflect the scope of your spend? Is your level of discount commensurate with what and how much you buy? If your volume has gone up, does your overall pricing reflect that? Are you leveraging any special pricing available through a GPO (Group Purchasing Organization) that the supplier works with?
How can you be of help to your supplier
Remember, this is a two-way street. Ask your supplier what you can do to help reduce their costs – e.g., less frequent deliveries. Do this with all categories in which you are spending meaningful funds, no matter how mundane. You would be surprised how much savings might be there.
Compliance with “contract” list item purchases
Is your team adhering to the “contract” list or other preferred items (e.g., house brands) for commodity type purchases (e.g., office supplies, cleaning supplies and medical supplies)? Is it updated on a regular basis to reflect new spending patterns? A good target is 70 to 80% compliance, as there will always be a need for items not on the contract list.
Special purchase pricing
When you have an unusual need, do you meet with your rep for special pricing or services? For example, if you are moving or re-outfitting an office, include your office supply rep in any planning and bid process for the large furniture purchase. Don’t assume your standard furniture discount will apply to a large, one-time, purchase or that the office supply companies don’t offer furniture as well as space planning. If you are refreshing your technology, e.g., buying a new fleet of laptops, don’t accept your standard discount for buying one at a time.
Make sure any incentives, such as volume rebates, are achievable and are win-wins for both you and the supplier.
Access to the latest technology and services
Ask about new changes to the supplier’s technology platform that you can take advantage of. Are you getting actionable management reporting, such as which individuals are achieving your on-contract spending goals and who isn’t so you can figure out why? Do you have a customized ordering page to streamline the ordering process? Are you getting your invoice sub-totaled by department or project, or how you track that particular expense, and can you automatically load it into your accounting system?
But don’t hesitate to go to market to find competitive alternatives
During your review with your supplier you may realize it might be time to consider other options. When you’ve been relying on the same supplier for many years, you likely have developed a trusted relationship with them. Sometimes, this trust can lead to price creep. This can be avoided if you create a habit of sending out RFPs to suppliers when contracts are set to expire and explain to your current supplier that you will be considering additional offers when their contract ends. This practice of creating competitive tension could make your current supplier more apt to provide competitive offers and pricing to keep your business.
All of the above items can lead to lower costs when working with your suppliers. This will generate additional cash that you can invest back into your organization.