Variablize your contract prices. Simplify your sourcing strategy.
While above is a challenge and need to adapt to the changing environment, sourcing professionals also need to simplify their sourcing strategy guiding on following principle in order to gear up towards this new kind of agility challenge.
- Keep scanning for alternate suppliers and create ‘ready to use’ supplier inventory so that buyers can access this as and when the need arises. This is perhaps the most important aspect in retaining the sourcing competence. Once there would be an inventory pool it will be easier for buyers to compare prices for any sourcing category.
- Standardize the consumption/demand as much as possible and this should be done much in advance if there is a plan to leverage RFQ or Auction. Define the specification clearly if items/services are non-standardized.
- Communicate clearly on decision parameters to facilitate healthy competition among suppliers. All parameters should be measurable clearly during an RFQ process.
- Provide flexibility to suppliers to enable them doing their own lotting strategy for the most efficient mix & match so that they can come out with the best price. This will be a win-win situation for both buyers and suppliers
- Create a performance driven environment to enable suppliers come out with their best, in terms of price and non-price aspects (like quality and delivery). Having a well defined framework is necessary to achieve this.
- Don’t overdo auction for the negotiations. Instead develop a clear understanding of market, commodity before deciding about auctions. Buyers also should take an extra effort to draft a clear state of work enumerating specifications and categories to be outsourced.
It is necessary for sourcing professionals to have an end-to-end spend visibility driven on a seamless technology platform and a tight monitoring framework which will trigger for any changes in price required due to changes in the external environment. The variablize pricing model is fast becoming a reality in services wherein pay-as-you-use model has evolved out as a matured service offering over the years. There’s a need to develop variablize pricing model in close collaboration with suppliers in an improved scientific way beyond the supply and demand logic.
