In order to optimize vendor relationships and ultimately cut spending, procurement professionals need to be able to answer key questions related to both direct and “hidden” supplier performance measurements. Those “hidden” performance measurements are especially hard to identify without serious analysis. For instance;
- Which vendors have the highest / lowest returns and fill rates?
- Which suppliers deliver early / late / on time?
- Which suppliers have contributed to unneeded stock outs / inventory increases?
- What is our top category of spending? Is this category trending up or down?
- How often do our suppliers deliver goods at pre-negotiated rates?
- Which areas of supply base spending can be consolidated / reduced?
With business intelligence analytics software, companies can easily identify how much was spent with individual suppliers and by whom within the organization, understand purchasing behavior, develop cost reduction plans, monitor performance on an ongoing basis and uncover significant supplier savings opportunities. These savings opportunities can include:
Reduction of Off-Contract Spending: Companies can create purchasing strategies with approved, contracted suppliers, and eliminate buying practices by employees who may be purchasing products and services off-contract and at a significant premium. Which departments impact particular activity costs the most? Business intelligence software can help define which activities can be minimized or improved to cut costs.
Consolidation of Spends: Businesses have an opportunity to consolidate spend and take advantage of volume discounts if different business units buy the same products and services from a wide range of suppliers.
Leverage Supplier Rebates: Supply chain organizations can demand rebates on money already spent when spending levels are higher than previously thought by either buyers or suppliers.
Better Contract Negotiations: Spending areas that see unprecedented increases in spending may represent contract negotiation opportunities. In addition, large spending areas in particular may present opportunities to renegotiate existing contracts for better rates.
Using supplier dashboards to monitor lead times, schedules, fill rates and other supplier-related metrics can also help manufacturers recognize additional (and often, very significant) cost-saving opportunities. For instance, if certain vendors routinely deliver shipments late that slows down your own manufacturing process, fewer of your products are getting out the door and therefore less revenue is coming in. These vendors might cost less upfront, but what are their delays costing you in the long-run? Could you shift your orders to different vendors that A) routinely deliver on time and B) is willing to give you some kind of bulk order discount? You’ve now cut the right corners that can make your business run more efficiently and more cost-effectively. Finding ways to save doesn’t mean always mean taking the cheaper supplier option, it means finding the smartest option.
In a global economy, your vendors and suppliers are an integral part of your supply chain. Their mistakes or bottlenecks ultimately turn into your problems and put your brand on the line! With a business intelligence software you can really see which vendors and suppliers not only help your business work more efficiently, but you can also find new ways to cut costs and increase supplier savings without sacrificing quality.
Categorized in: Intelligent Analytics
This post was written by Pat Hennel