How corporate trade can help procurement manage cost without jeopardising value

Today’s procurement professionals feel the pressure of juggling competing priorities on a daily basis. They are simultaneously challenged with securing the highest value services while negotiating for the lowest prices. But when procurement officers allow a fixation on securing the lowest cost to outweigh the focus on preserving value, more than just the company's bottom line can suffer.

The quality of the service they receive from their vendors can also be diminished, which can have a direct impact on the quality of goods and services their company provides to its customers. There are, however, a number of tools that can help procurement lower the total cost of services they purchase without diluting service quality, and corporate trade is one of them.

What is corporate trade?

Corporate trade (also called corporate barter) has been around for years, but companies are increasingly using it as they look to manage cost without diminishing the quality of services they purchase. Corporate trade enables a company to exchange its excess inventory for trade credits, cash or a combination of both.

How does It work?

In corporate trade, payment for inventory is typically equal to its wholesale/acquisition cost. In return, a company commits to making expenditures through the corporate trade company, using trade credit as partial payment. Expenditures often purchased through a corporate trade company include advertising, travel and events, freight and logistics, and retail marketing.

What's in it for procurement?

While procurement should always make managing costs a top priority, a singular focus on slashing vendor pricing could expose the company to greater risk long-term. For example, it is impossible to negotiate a 15 per cent discount on a service with a 5 per cent profit margin without compromising either the quality of the service or the solvency of the vendor. There aren’t too many companies that can sustain their business by operating in this way. With corporate trade, however, procurement officers have a tool that empowers them to address the dual demand of reducing costs without jeopardising the service quality they need and expect.

The simple takeaway

Procurement professionals are tasked with managing the competing priorities of lowering cost and improving value across an ever-growing list of vendors and service provider relationships. That's not an easy task, and procurement has not always had a lot of options for enhancing the value of vendor relationships outside of negotiating prices down. With corporate trade, procurement has a powerful tool for doing just that. By leveraging excess inventory and the corporate trade model, procurement can reduce their company's total cost without jeopardising the quality of goods or services they are purchasing or producing.

Kevin Farkas is EVP of sales and business development at Active International.

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