Share and share alike: buyers are willing to split savings

17 September 2009

18 September 2009 | Allie Anderson

Almost three-quarters of buyers would offer half their savings to suppliers that submit successful cost-cutting ideas, the latest SM100 poll reveals.

Of this 73 per cent, many reported having implemented such initiatives already and a number suggested sharing cost savings across the whole life of a product or service was fundamental as an incentive for vendors to deliver best value.

Earlier this month General Motors revealed plans to split cost savings evenly with vendors who submitted successful ideas on cutting the costs of car parts (News, 10 September). Bill Fyfe, procurement manager at the National Trust for Scotland, said: "Suppliers need to be encouraged to propose cost savings on their products and services as they are the experts in their field."

Cristian Martin, procurement and contracts officer for the Commonwealth Secretariat, would be happy to share savings if it was "a matter of innovation" and not just an adjustment to a contract. "If the coffee machine people were able to service the machine in such a way that it required fewer visits, I would share this saving. If they changed the ingredients, I would not," he said.

Improved supplier relations was cited by several respondents as a motive for sharing savings. Sarah Billson, director of consultancy Tickling the Trout, said the openness and honesty generated by shared savings schemes resulted in more of a partnership approach to supplier relations. Some of the respondents suggested that while offering to split savings with innovative suppliers is good practice, they would not share a full 50 per cent.

Andrew Daley, director at procurement recruitment firm Edbury Daley, said: "We wouldn't go as far as to share half but we have definitely rewarded suppliers by paying them quickly, refusing discounts and putting them in touch with other potential clients. This has strengthened some of our relationships."

Guy Allen, director of sourcing and supply at Fujitsu Services, said sharing savings over the life of the product or service was unattractive, but he would consider splitting cost benefits in the first year of a deal.

Of the 27 per cent who would not share cost savings, a number said such schemes could have a negative impact on supplier relations. Brian Grew, supply chain director at concert promotion company Live Nation, said: "Haggling over implementation costs and measuring the actual savings can be a source of disagreement between parties."

SMsep2009

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