Resist the temptation to squeeze suppliers - there is a more ‘grown-up’ approach
Tuesday, June 24, 2014 - 00:00
24 June 2014 | Steve Malone
When you are under the cosh to reduce costs the temptation is to put the squeeze on suppliers. It’s something we continue to witness in the public sector, despite the fact that it is clearly unsustainable.
This traditional, blunt tactic might force contractors to deliver 2-3 per cent savings by reducing their margins, but how many times can you expect them to do that? Over time, such a heavy-handed approach may damage your relationship with those suppliers.
In the social housing sector we are seeing an increasing number of organisations reject this method in favour of a more sophisticated way of working. They have done so as part of a process of procurement transformation that makes value creation, not just cutting costs, the primary goal.
I’m not saying price is a minor consideration. Far from it. Now, more than ever we must be rigorous about achieving the best price points and benchmarking outside our sector to ensure bills remain low. But cost isn’t everything. It’s only one tool in our savings armoury. Better use of data and technology plus staff development are also vital. As is the need to ensure the value of procurement is understood throughout the structure of an organisation.
But to achieve true value creation, organisations must build genuine, equal partnerships with suppliers, working creatively with them to identify new areas to make bigger savings.
This might mean jointly analysing spend data and evaluating contract delivery to take costs out, creating social value opportunities collectively and sharing technical expertise so staff on both sides can make further savings.
This more ‘grown-up’ approach will achieve bigger savings in the long term – something I’ll be discussing at procurement event PfH Live in Manchester. I’ll tell social landlords this method may also minimise the risk of organisations being drawn into situations where suppliers exploit their position after being forced to concede low fees.
Reducing prices in your supply chain is critical. But to create sustainable value, organisations must collaborate and innovate with suppliers, not push them around. On top of pressure to cut costs, public sector bodies are increasingly expected to deliver greater social value through their spend. Again, this will only happen if procurement evolves from being a blunt instrument to something far more intelligent.
When you are under the cosh to reduce costs the temptation is to put the squeeze on suppliers. It’s something we continue to witness in the public sector, despite the fact that it is clearly unsustainable.This traditional, blunt tactic might force contractors to deliver 2-3 per cent savings by reducing their margins, but how many times can you expect them to do that? Over time, such a heavy-handed approach may damage your relationship with those suppliers.
In the social housing sector we are seeing an increasing number of organisations reject this method in favour of a more sophisticated way of working. They have done so as part of a process of procurement transformation that makes value creation, not just cutting costs, the primary goal.
I’m not saying price is a minor consideration. Far from it. Now, more than ever we must be rigorous about achieving the best price points and benchmarking outside our sector to ensure bills remain low. But cost isn’t everything. It’s only one tool in our savings armoury. Better use of data and technology plus staff development are also vital. As is the need to ensure the value of procurement is understood throughout the structure of an organisation.
But to achieve true value creation, organisations must build genuine, equal partnerships with suppliers, working creatively with them to identify new areas to make bigger savings.
This might mean jointly analysing spend data and evaluating contract delivery to take costs out, creating social value opportunities collectively and sharing technical expertise so staff on both sides can make further savings.
This more ‘grown-up’ approach will achieve bigger savings in the long term – something I’ll be discussing at procurement event PfH Live in Manchester. I’ll tell social landlords this method may also minimise the risk of organisations being drawn into situations where suppliers exploit their position after being forced to concede low fees.
Reducing prices in your supply chain is critical. But to create sustainable value, organisations must collaborate and innovate with suppliers, not push them around. On top of pressure to cut costs, public sector bodies are increasingly expected to deliver greater social value through their spend. Again, this will only happen if procurement evolves from being a blunt instrument to something far more intelligent.
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