Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons“Managing Indirect Spend: Enhancing Profitability”.
The holiday season is upon us, and you know what that means. Procurement professionals aren’t the only folks stressing over purchases. All over the world, people are going to market in search of suppliers that’ll provide the gift from the commercial. They want to source a product worthy of jingles and voice-over narration. Maybe it’s a car they’re looking for. In that case, they’re embroiled in procurement campaigns with one big, red goal in mind.
The commercials make the process look easy.
Holiday advertising campaigns paint a wildly simplistic picture of purchasing decision-making process. Viewers are not only expected to believe such enormous bows exist, but also forced to ignore the complexities of purchasing initiatives. They focus exclusively on immediate outcomes. Favouring hugs and hand holding to the hard work of market research and implementation, they depict a world that can only exist in 30-second pieces.
In a Procurement context, every commercial implies that its amateur Supply Management unit has settled on a single-source solution. The product – whatever it is – solves a problem, fills a gap, or answers a question instantly. We’re meant to understand that the supplier (in this case, a vehicle manufacturer) will always meet service expectations. New cars are never shown replacing a predecessor. Instead, they sit alone in the driveway waiting for the happy family to ‘unwrap’ them and drive into the New Year.
But what really happens as December turns to January and February? More likely than not, the happy family will employ something like a dual-source strategy. Let’s take a look behind-the-scenes.
Our family has enjoyed a long relationship with the incumbent vehicle. So far, it’s provided value adds in the form of great fuel economy statistics and a comfortable interior. They’ve also upheld their end of the ‘supplier relationship’ by changing the oil and bringing the car in for regular inspections. Recently, however, the car’s performance has shown room for improvement. Maybe the transmission is making a strange sound, or perhaps the family has children on the way and needs something bigger. Whatever their reasoning, this impossibly photogenic family has begun to survey the market.
After months of careful consideration, they’ve located a cost-effective, environmentally-responsible option that promises years of happy driving. Now, they’re all set for its dramatic unveiling. That doesn’t mean they’re selling the old car for scraps. After all, it’s still the supplier they’re most comfortable with, and there’s no guarantee the new car will work as planned. Retaining the old stand-by as a secondary option greatly reduces the risks associated with such a large purchase. The old car will enable them to slowly familiarize themselves with the new one’s features and functionality while providing a fall-back plan if something unexpected should occur. Though they’ll gradually drive the old car less and less, it should prove essential as they transition to an exclusive relationship with their new vehicle.
For companies, employing a dual-sourcing strategy can prove similarly effective for minimizing risk and easing into a new supplier relationship. Like trusted automobiles, supplier relationships sometimes suffer as years of wear and tear accumulate. Savvy Procurement professionals are always scanning the market in search of more competitive options, but making a switch is rarely simple.
Long-time suppliers tend to ingrain themselves within a company’s operations and culture. New vendors can’t hope to equal the trust they’ve established, the value they’ve provided, or the solutions they’ve implemented overnight. Sending the supplier to the junkyard might prove as short-sighted as scrapping a perfectly good car. The most responsible and cost-effective option might be to gradually cut ties with the incumbent provider. That way, companies can enjoy the dependability they’ve grown accustomed to as they begin to establish and optimize their new relationship. With consistent communications throughout the implementation process, companies should enjoy smooth transitions that satisfy their needs without inviting undue risk or putting too much strain on either supplier.
A dual-sourcing strategy won’t get your company on a commercial. Responsible behaviour rarely winds up on television. Still, as a low-risk, cost-effective plan your dual-sourcing system should set you up to more confidently make bold purchasing decisions in the future. Procurement might never present your company with a big, red bow, but it should annually provide the gift that keeps on giving: sustainable cost savings.