It’s not enough to have a great product, an efficient factory and a robust food safety and quality management system. You also need to be able to achieve value for money on your inputs. You need your supplier’s working for you: supplying you on time and in full so your production lines are never down for want of supply, ensuring that their supplies are always food-safe and to specification, giving you a fair price as opposed to taking advantage when they can, giving you dedicated R&D resource, being stable, reliable and responsive to your needs.
“In business, you don’t get what you deserve. You get what you negotiate.”
This is a slightly adversarial view of the business relationship which seems to challenge one to try to take the upper hand in a relationship. Taken from another perspective however; that unless you negotiate; you’re likely to get a bad deal; it’s a very salutary piece of advice.
Understanding your Input Costs and Achieving Value for Money
The generally accepted wisdom in the world of cost management is that the way to ensure value for money is to put your business out to tender. And that is absolutely true; some of the time. Going to tender will get you the best result from a survey of potential suppliers who are interested in quoting for your business at a point in time and it’s the approach often used by a company that doesn’t understand what price they should be paying for an item. There are advantages to purchasing by tendering process and it is doubtless a good idea for a purchaser to sense check his knowledge and any assumptions every three years by putting the business out to tender; the lack of a knowledge based approach to purchasing condemns a customer to perpetual self – doubt over the issue of whether they are buying competitively; and therefore an endless circle of (always very time consuming and very often relationship destroying) negotiation and re-negotiation which takes time away from the real priorities which the business needs to focus on – such as meeting their customer’s needs better and faster than the competition. Most importantly, a relationship not based on facts but instead based on the premise that everything is up for grabs all the time leads to games and complicated little dances between supplier and customer where each party is constantly trying to create the impression that price needs to move up or down respectively. From the customer’s point of view, the supplier will always hide their true position and will always seek to keep something up their sleeve for when the customer puts the pressure on and squeezes them.
“THE NEGOTIATING POWER AFFORDED BY A DETAILED UNDERSTANDING OF A SUPPLIER’S COST OF PRODUCTION AND THE CHANGING WORLD COMMODITY MARKETS IS THE INVALUABLE KEY TO UNLOCKING A BETTER DEAL…..“
If only one knew what the actual cost of production was – then one would know for sure what an efficient price was. One would actually know what price one ought to be paying and therefore what was too low a price and what was too high a price to pay. An efficient price is the real cost of efficient production plus a fair profit margin. It is actually possible to know this if one understands the cost structure of the industry concerned and more particularly of a specific business in that sector. A thorough knowledge of the commodity markets which drive and determine the supplier’s costs mean that a customer is able to know with accuracy on a month to month basis what the cost of production and a fair profit equates to.
If you need to reduce input costs without treating your supplier unfairly; get in contact for a no – committment discussion.
Commodity Price Tracking
That’s where we come in. Tracking of the commodity markets that drive your supplier’s costs, along with Cost Modelling; enable you to keep tabs on how the cost of production of the important item you purchase is changing.
A deep understanding of who’s who in global markets enables us to provide clients with the facts and figures that help them make key buying decisions, ward off unjustified price increase requests from suppliers and back up price increases to their customers.
If you think we’d be able to help your business; get in touch to arrange a free consultation to discuss your needs in confidence.
Supplier Management
GOOD SUPPLIER MANAGEMENT IN TODAY’S BUSINESS ENVIRONMENT IS FUNDAMENTAL TO BUSINESS SUCCESS.The right supply partner, properly managed, can be an engine of growth for a business; applying its technical, creative, manufacturing and project management skills to driving its customer’s business. On the other hand, the failure of a supply partner to meet KPIs can not only impair a company’s performance; in the case of an ongoing inability to supply or a serious technical fault; a supplier can cause the disappearance of a brand or a business from the market.
The supplier is a key stakeholder in a business and must not be considered as a mere appendage, but a vital part of the resources and the team of the business itself.
The supplier could be the weak link in your chain or the strong link that pulls its weight.
The role of suppliers and the role of supplier management in a business are almost inextricably linked. The supply base may be primarily managed by the purchasing team within a business but the supplier’s activities must be interwoven into the very fabric of the business. The supplier is a key stakeholder in a business and must not be considered as a mere appendage, but a vital part of the resources and the team of the business itself. A supplier with perfectly balanced motives could not maximize their positive impact upon their customer’s business unless the customer and supplier together invest in those communication and business processes, that synchronization of effort and that meeting of minds which results in the supplier’s maximum contribution towards achievement of the customer’s goals. All of this implies a dedicated and sustained resource and effort on the part of the Customer to share and explain their goals, to confide in, include and support the supplier in those joint processes which result in the successful and meaningful contribution of the supplier towards the achievement of the customer’s goals. This is what Supplier Management should mean:
Effective Supplier Management is “to harness and manage the technical, creative, manufacturing, project management and other expertises, efficiencies, advantages and skills of each supplier in an efficient and timely way in order to maximise the supply base’s contribution to the achievement of corporate objectives”.
If you need some help with formulating and instituting a supplier management review and / or strategy; why not get in touch?
Outsourcing and Inward Supply Chain
Very often, start up businesses only consider making their product themselves and don’t consider the other alternative: outsourcing. The choice of the right supplier is crucial because the company vests almost complete dependence in the supplier of a finished product and is very dependent on the supplier’s abilities, expertise, capital investment, capacity, integrity and goodwill. They key advantage of outsourcing (subject to negotiation, due diligence and commercial agreement) is that if another non – competing company already has the capital investment and expertise to make the product you’re looking for; it can vastly reduce time to market and commercial risk to enter into an outsourcing partnership.
I have considerable experience in outsourcing, contract writing, negotiation and inward supply chain. Get in touch for a confidential conversation.