Don't forget small suppliers in strategic sourcing

26 April 2012

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26 April 2012 | Adam Leach

Buyers miss opportunities for significant savings by not paying sufficient attention to small suppliers.

Discussing the importance of putting small suppliers under the microscope to deliver savings at a CPO Agenda webinar yesterday, John Jensen, senior director of solutions management at SAP, said: “You need to understand what you are buying from them so that you can better focus that leverage.”

Jensen explained that small suppliers - defined as those being paid less than $10,000 (£6,177) a year – account for on average 9.6 per cent of overall spend, around $269 million (£166 million) a year. He suggested that if just 60 per cent of those purchases could be done with contracted suppliers, organisations could cut costs by an average of nine per cent, and then the company could see savings of $14 to $15 million (£8.6 to £9.2 million)

Jensen also highlighted the importance of researching the ownership structures of suppliers in order to identify opportunities to leverage spend. He told the audience how one company had contracts with 20 suppliers of different names that were actually all owned by the same business and could be managed in a more central manner.

Arvind Swamy, former vice-president of global strategic sourcing at First Data, advised using supplier feedback to identify issues that would otherwise go unnoticed: “A lot of times the supplier sees things wrong with the business that the business doesn’t realise.” He also emphasised the importance of measuring the relationship with suppliers through key performance indicators and service level agreements on a monthly basis. He said by doing this, buyers can identify where there is room for improvement in the relationship.

James Sanz, senior manager - OneSCM enablers at Vodafone, also noted the importance of SRM in strategic sourcing. He said overlaying supplier performance with the amount spent with vendors was key in making an overall assessment of the value provided by them.

* The webinar will be available on the Supply Management and CPO Agenda websites later this week.

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