Buyers urged to squeeze strategically

28 May 2009

29 May 2009 | Martha McKenzie-Minifie

Buyers can squeeze better value out of suppliers in the downturn but must handle the process strategically, according to procurement consultants Efficio.

In an article titled "Seizing the Day", Efficio vice-president Toby Munyard (pictured) said those companies that are "reaping benefits in the short term" must also safeguard their supply chains for the future.

He advised every area of procurement spend should have a category strategy that balances the current opportunity to reduce prices with a view of the longer term, as prices are likely to increase in the future. He highlighted key areas where buyers should review their category strategies, including:

•Getting to the "should price" - the price the item is worth, rather than what it is sold for, and the one that should be paid. This can be achieved by understanding the underlying drivers in the pricing, including labour, commodity, material and fixed costs.

•Making the most out of "sourcing levers", such as challenging product specifications to identify alternative options for goods or raw materials.

•Analysing risk - by ensuring that any short-term price reduction will not affect the longer-term financial stability of vendors.

"This is a unique window where buyers can do so much more than simply demand reductions," wrote Munyard. "It is an opportunity to manage your complete supply base and organise procurement so that this short-term effort does not go to waste and can be used for long-term gain."

SMmay2009

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