Almost a year ago, Supply & Demand Chain Executive published PurchasingNet‘s top 10 survival tips in a down economy. Even though the consensus is that the economy is starting to recover, the recovery is likely going to be a slow recovery and, if you’re not prepared, a painful one. That’s why it’s important to keep operating lean and mean, and nine of the tips put forward by PurchasingNet are still very relevant. In this post I will explain why they are still relevant, and also explain why one of the tips, while well-intentioned and seemingly a good idea, is actually not that great in practice.
Top 9 Survival Tips from Purchasing Net:
- Make sure you have a “Descending Dollar” list of your supply-base for at least the last 12 months.
I’d also do it for the last 2 years, 3 years, and 5 years. It’s the first step of a good spend analysis, which should also answer what are you spending your money on, and how it breakdowns by supplier. This helps you keep track of your low-hanging fruit opportunities, which helps you find savings fast and lets you know whether your spending has improved over the last year.
- Rank your suppliers as A, B, or C according to spend.
A suppliers are the first suppliers you should target for savings. Also make sure that any “strategic” suppliers that supply non-commodity, hard to replace, “strategic” parts or services are not ranked as a “C” supplier.
- For each high dollar spend category, initiate negotiations or renegotiations.
Renegotiations are ok if it is the difference between survival and bankruptcy. Just make sure to follow these tips and renegotiate with integrity.
- Use “Demand Management Techniques” for indirect spend.
Don’t let your employees spend willy-nilly or buy what you don’t need. Also consider adopting an e-Procurement platform that steers employees to preferred or low-cost alternatives for needed office supplies and equipment.
- Determine which KPIs are important to your success.
You should only have a few of these.
- Measure actual performance vs. best practices KPI benchmarks.
Measure and report progress monthly.
- Match invoices to purchase orders automatically.
Not only will this dramatically reduce errors, it will dramatically increase actual savings as you will immediately know when you are not being billed at contracted rates or when you are being shipped substitutions which are off contract (which is a favourite tactic of some office supply vendors).
- Track and report the number of “after-the-fact” purchase orders.
This helps you determine how well your processes are being followed as well executed processes should produce very few “after-the-fact” purchase orders.
- Push all purchases and invoices through a central procurement system.
This will help reduce maverick buying.
The last tip put forward by PurchasingNet was to consolidate as much spend as possible with one supplier. This is a bad idea in practice, especially in current economic conditions. While it seems to make sense from a savings perspective, as it would theoretically give you more leverage in negotiations with the high volume supplier, it is very dangerous from a risk perspective. Putting all of your eggs in one basket when earthquakes (bankruptcies) are at an all time high is just not a good idea.