Developing core suppliers improves purchase order management and procurement strategy
Learn leverage techniques for better procurement advantages with your suppliers
Learn ways to define and execute greater strategic-level guidance for purchase orders and better materials management by understanding your customers; supply chain alliance partners, distributors and your competitors.
As discussed in my previous article, “AVL segmentation part of CPO strategy for competitive supply chain management”, a large portion of your material spend is likely allocated to core suppliers who provide you with mainstream products in the markets you source.
Items or components you procure; whether for electronics product manufacturing and production or internal or commercial usage, or resale, reflect your company’s market positioning and your [perceived] solutions for customers to some extent.
Core suppliers, whom collectively get the majority of your spend, are also key players in the marketplace, as are you.
Consider this: chances are you and your core suppliers have some degree of common vision in the target market. To achieve success and sustainable development from the competitive marketplace, you should be working with your core suppliers strategically.
There is an old Chinese saying: knowing both your counterpart, and yourself, makes victorious. Some readers may also recall this statement from Sun Tzu’s, The Art of War: “If you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle.”
Relationship, relationship, relationship
A good place to start this process is the relationship between you and your core suppliers. Use caution as the terrain could prove to be complex and sensitive, even political, as many readers may already know.
A core supplier could be your counterpart as follows. You should evaluate the following relationships carefully to help you better understand your core suppliers from all vantage points.
- What / how do your customers purchase from you?
- What value do your customers get from your products?
- How do your products help your customers achieve their business objectives?
- Do you know / understand your customers’ product roadmaps, and their relative purchasing plans?
- How can you leverage your company’s position to achieve better procurement advantages with your customers?
Your supply chain alliance partners
- How do your products complement product from your alliance partners?
- How can cooperation with your alliance partners help you expand, together, in the marketplace?
- How do you anticipate purchasing relationships, relative to this cooperation, changing in the future?
- How do contract terms and conditions in your alliance service agreements influence purchasing and procurement decision internal your alliance partners?
- What percentage of revenue contribution do your distributors contribute to your overall sales revenue?
- In which markets (segmentation) do your distributors exhibit good depth / strength, scope?
- How can you leverage distributor marketplace strength and insight?
- In which product markets / segmentation do you compete?
- How do you anticipate these competitive relationships evolving in the future?
- How can you gain competitive procurement advantages in these situations with your competitors?
Developing a more comprehensive understanding of the overall relationships with your core suppliers as these relate to your customers; your supply chain alliance partners, your distributors and your competitors will help enable you to:
- See major relationships between your company and your core suppliers on a corporate level
- Develop a clear understanding of positioning between your company and core suppliers
- Reveal areas for additional leverage for more effective contract negotiations
- Design sourcing programs that are more beneficial for the long term
- Define and execute greater strategic-level guidance management for each purchase order
The one-hour quarterly meeting
What is your core supplier’s corporate strategy? And, what is their selling strategy, accordingly? It is now time for you to book one-hour, quarterly meetings with your core suppliers to better understand all of this.
Whenever core suppliers focus on R&D of self-branded product, core suppliers begin reducing distribution of alternative brands. So, when suppliers decide to pursue higher profit / margin business, core suppliers become more concentrated on service-related projects and, therefore, less concentrated on selling low-margin product.
Obviously, core suppliers are important to your business. But, because they also command large portions of your total spend, you must be proactive and be able to adjust your procurement strategy to quickly address any sudden strategy changes internal core suppliers that could have adversely impact your business outcome.
Corporate strategy and procurement demand
Supply and demand are invariably interlocked with each other. You must be crystal clear about your company’s demand. Yet, we all know this is not 100 percent possible as any shift in market trend and strategy could impact changes in demand. (See: Supply chain contract delivery schedules, schedule changes, liability)
For example, in the current business environment for cloud computing, how will market demand change? What will be the next focus for IT buyers / end users? How will this affect your company’s solutions for customers? What change requirements, and forthcoming challenges, will impact your procurement? How do you align your supply base accordingly?
As necessary, be pro-active in sharing strategy updates with your core suppliers. Communicate and coordinate your procurement strategy for / with core suppliers from the perspective that both your core suppliers’ strategy, in combination with your company’s overall strategy, are collectively one of the mandatory steps to success. (See: 7 China purchasing, supplier mistakes to avoid)
Strategy provides direction and reviewing your strategy and making adjustment against plan execution is always an iterative process. You and your procurement organization should be motivated to carry on this iterative process on a daily basis.
Improve your procurement organization by laying a good foundation using the techniques above and building this foundation with core suppliers with the mutual understanding of long-term cooperation.