Five Ways to Get the Best Deals From Your Suppliers
By Scott D. Hollis, Senior Vice President, Avendra, LLC
Today, the best advice anyone in charge of supply chain management can give is take a strategic, long-term view of your contracting efforts. All of us want to save money, but it takes more than hard bargaining to get the best deals. It takes vision and the ability to look at the entire supply chain from field to table to identify the most effective ways to make the overall supply chain more productive. Based on many years of experience in dealing with over 900 suppliers and a team of 50 commodity experts, I would suggest working with suppliers, not working at odds with them, to take costs out of the system. Based on this, here are some ideas:
1. Cooperation and Communication
Top on the list of how to get the best deals from suppliers is to cooperate and communicate with them. This can be a very time consuming activity, but well worth the effort if you expect to develop true partnerships with your suppliers and ultimately drive costs out of the supply chain. Suppliers need to understand your business, and you need to understand theirs.
For example, you might consider setting processes in place to routinely meet with a wide range of suppliers to better understand their offerings and expertise. Structure your meetings to allow time for them to tell you what is new as well as time to for you to tell them your problems. Challenge them to help you find better products or services to meet your specific needs.
Last year, when several jurisdictions around the U.S. enacted zero transfat regulations, our customers were in need of quick solutions to provide their guests the products they wanted, but also to comply with the law. What we did was to closely work with our suppliers to come up with a variety of solutions. And, we asked suppliers to help us train customers by jointly developing webcast training that featured a number of suppliers themselves explaining the innovative solutions.
You might also consider establishing a board comprised of a number of suppliers across a range of product categories that meets regularly. The communication and interaction that takes place at these supplier meetings can open doors to a multitude of fresh ideas and potential cost-saving opportunities.
2. Predictability and Delivering on Commitments
Another way to generate savings is to set up processes that assure you always get the same quality product. When we starting dealing with overseas vendors it took a while to make sure we were getting the exact specifications we wanted. Numerous complications--the technicalities of international trade, language barriers, vast product quality differences overseas, and long lead times had to be overcome.
We learned that today in international markets, what formerly could be specified as a standard product could now be interpreted 10 different ways by 10 different international vendors. In a recent evaluation session, for example, we had to eliminate seven of the ten samples sent to us to put through testing because they really did not meet the criteria we set forth. Obviously you want to compare price, but also you must verify product measurement and compare to a defined specification.
Sourcing the right product to meet your brand standards may require a closer look at your current buying processes. As you look at your current practices you may want to create detailed specifications. This way you are getting predictable product every time you order and you can more easily check to see if suppliers are delivering on these standards.
Once you put your specifications in place you also want to get your organization focused on supporting your corporate brand standards. You can drive savings through higher levels of compliance ensuring that you are buying the right items from the right suppliers, thereby aligning procurement processes with larger business strategies.
To this end, you might want to develop analysis and reporting systems to monitor your success. Participation and spend reporting systems let you compare actual spend against potential spend and reveal areas where procurement practices should be improved.
3. Open to Change and Innovation
As you work with suppliers to get great prices also work toward great solutions.
In the past year, there have been many product recalls, especially in produce. Limiting your exposure to food safety problems is far more important than any temporary cost savings. In the case of produce, traceability is the key to a safer supply chain.
Working with our growers and shippers we were able to develop a great solution. We have enhanced our program to provide even better coding and tighter controls that allow us to trace high volume, high risk produce as it moves from the grower through regional distribution. The result is greater safety which in the long-term means lower costs.
4. Explore Synergistic Opportunities
In working with suppliers, it is in everyone's interest to drive costs out of the supply chain. Often, this is a matter of good R&D, but it is also a matter of exploring synergistic opportunities. For example, what can we do and what can they do? Is there opportunity for packaging reduction? Can we make the pie bigger and increase value for both the customer and supplier, creating more marketable products? Or, are their ways we can lower costs and freight?
Today there are many suppliers taking this synergistic approach."i? 1/2 For example, one of our pork suppliers is building a renewable synthetic fuel facility where they will convert low grade, inedible fats and greases into renewable transportation fuels for the military and civilian markets. This innovative thinking growing the pie bigger can lead to long-term savings for all of us.
5. Create measurement systems
Ensuring you receive the pricing you work so hard to obtain is critical to the ultimate success of your supply chain management. This means putting in place audit systems for both prices and products.
First, create processes to validate and correct contracted pricing. You might consider developing a tracking system that compares expected sell price to actual sell price. With this information in hand, you can flag variances or suspected pricing errors and meet with distributors or manufacturers to discuss these potential errors. It might seem like a daunting task, but even a small reduction in your error rate can mean significant savings for you.
As for auditing products, you might consider implementing a Meet the Truck system where you inspect truck deliveries on a surprise, random basis. This way, when you find errors (in what was sent or in a lower quality substitution), you can quickly resolve the matter before you take possession.
In Summary
In conclusion, with a strategic vision of how to get the best deals and by working collaboratively with suppliers there is tremendous opportunity to drive costs out of the system and build innovative solutions for the entire supply chain.
Scott D. Hollis is Senior Vice President, Strategic Contracting for Avendra. Mr. Hollis’ responsibilities include overseeing the strategic contracting segment of Avendra. The Strategic Contracting group is responsible for contracting goods and services totaling more than $3 billion dollars in annual spend and over 900 supplier contracts. Mr. Hollis is a graduate of Ohio State University with a bachelor's degree in agriculture. He did his postgraduate work at Johns Hopkins University, earning a master's degree in business administrative science. Mr. Hollis can be contacted at 301-825-0027 or scott.hollis@avendra.com
