In his first post on benchmarking and collaboration, Iain Stewart, Director at 105 Consulting highlighted some basic pointers on the subjects of cost analysis and benchmarking - two useful approaches to ascertaining whether or not you are paying a fair price, based on the market and on realities. In this second post Iain discusses how collaboration can be a source of advantage for buyers.
We briefly mentioned the subject of collaboration and, specifically, aggregating your demand with other buyers in your company across the globe, or pooling your demand with other buyers in other organisations.
Imagine that you need 1 ton of gravel for your driveway. Once you have chosen the gravel, you could buy it in 25 kilo sacks, or in bulk. Either way, you have to get it to your driveway. Delivery could be from the supplier (or vendor), from a third party, or collecting and carrying it yourself.
Whichever method you choose, the cost of delivery will be high in proportion to the cost of the gravel.
If a number of your neighbours also want 1 ton of the same gravel, things potentially improve! The quantity rises, so the cost of transport falls in relation to the cost of the gravel; new sources of supply open up, because suddenly you are more interesting to more suppliers; more choice may appear because you can buy different or better varieties in higher quantities; you may be able to negotiate on the price, and all your driveways will look similar!
These principles apply equally in business, where you can look at combining volume, and collaborating with other buyers, as a source of leverage and potential strength in the market place.
There are however a number of essentials for successful collaboration – here are four that you should consider early in the process.
1. Integrity & Skill – do you all trust each other, will everyone run with the agreed deal and pay their money when required, will anyone break ranks and leak some confidential information to a gravel supplier, and does the group have all the expertise you need to be able to operate successfully?
2. Agreement to Specifications – are you all able to agree on the specification, and the delivery date, and on exactly where you each want the delivery to be tipped?
3. Robust data – have you all measured your area properly, preferably using the same process, and you each know how much you need, has everyone stated what min/max price they are prepared to pay, have you all identified which vendors you would want to quote?
4. Governance and Ground Rules – who is in the lead here, who plays which role (e.g. measurement, sourcing, negotiation, agreement and payment), what are the rules of engagement, and how will you all agree to measure the success of the project?
Collaboration can come apart rapidly in the absence of any one of these – do your homework to verify that collaboration will result in a better outcome for you; and make sure you choose the right partners (or neighbours!) to work with.
In its favour, collaboration is a powerful tool, not only for aggregating demand and leveraging buying conditions, but also for embracing the knowledge and expertise of others outside your normal work group.
Consider the range of collaboration opportunities – one is with buyers in other areas of your organisation, another is with buyers in other organisations, (always assuming that is legal, acceptable, and does not pose a threat to confidential information).
Consider too, closer collaboration with your internal customers, your colleagues and the people on whose behalf you are buying.
The best organisations (in a number of sectors of business) have developed and refined collaboration across the departments, or functions, or ‘silos’, to the point that they can now truly boast their superiority in the way they manage categories of spend, markets, suppliers, and innovation.
And do not forget your suppliers – once you have chosen the right suppliers for your most important categories and the relationship is functioning well, collaboration with these suppliers under the right conditions can be a huge source of value – the potential genesis of competitive advantage for your business.
In these tight economic times then, think about the opportunities for being creative and constructive, with the use of the tools we have described, price analysis, benchmarking, and collaboration.
Explore them, build your skills, apply them, in the right situations, and watch how it is possible to find new sources of value and professional enjoyment, even when the going is tough!
Please click here to read: Procurement benchmarking and collaboration (Part 1): some rudimentary guidance
105 Consulting is a procurement and supplier management consultancy focused on helping its clients to manage cost, risk and performance through sustained improvement of their procurement capability. 105 Consulting works with businesses across a range of industries including engineering, pharmaceuticals, telecoms and financial services.
We’re grateful to Iain for his expert contribution. Please feel free to post your comments in response below.