Getting value for money from suppliers
Know what’s happening and you improve your chances of success; however finding all the information you need is not always easy. To paraphrase Thomas Arnold: ‘Real knowledge, like everything else of value, is not to be obtained easily...’
Paul Mason, CEO, PMC considers the point well-made. However, retailers often fail to interpret information intelligently, to consider the key dynamics affecting decisions and adjust accordingly. And importantly, they forget the need to understand the supplier.
Mason states: “In the current economic situation it’s crucial to get the best possible value from your suppliers. That’s not always easy. To be effective it involves benchmarking your costs against other retailers, and understanding the way suppliers think.”
Retailers can buy benchmark data but this is normalised and generalised. Obtaining data that looks like your business scenario is next to impossible. You can collaborate with another retailer, one that you are comfortable to exchange information with or use a consultant. Although they will not give you precise information about clients or disclose the specifics of another retailer consultants can tell you, based on experience, whether your position is good, bad or indifferent and where there are opportunities to drive improvements.
“You can find accurate and current information on suppliers but it involves time and effort, so it’s often forgotten,” says Mason. “Searching out information from other retailers can be impossible so it’s usually not attempted. However, some information is better than none. So what’s the answer?”
“Retailers rarely properly benchmark their costs against other retailers. They may well run a tender process and look at competitive supplier bids but that’s about as far as it goes. Often, their most relevant information comes from an IT director moving from another company and looking at the contracts he’s inherited. There are usually two reactions. First: “I wasn’t paying anywhere near that amount for the same service from the same supplier.” Or second: “I was stitched up in my previous job!”
Issues change with conditions
Mason continues: “You may know what your drivers are when it comes to striking a deal. The key point is about how you negotiate. Do you know what the supplier’s drivers are? If you don’t, find out. How else will you understand any points of weakness? You will better understand what they have to negotiate with and when they may be hungry to do a deal with you. This is not just about bashing down suppliers with a stick, it’s negotiating - and finding a win-win for both of you.”
“My experience of both the buyer and the supplier side of negotiation highlights that different thought processes are often at work. When we bring retailers into PMC it takes time to transition their mind-set from retailer/procurer to supplier/seller. For a successful negotiation you need to understand the other person’s mind-set. It’s difficult to gain that experience but it’s valuable and worth the effort. That’s why I advocate people involved in the process broaden their horizons as much as they can.”
In tough times look at ways to reduce costs or improve services
Consider outsourcing technical support. Currently, your services may come from several suppliers. Could you give it all to one trusted supplier and bring the costs down?
Mason explains: “When I ask that question I can hear the alarm bells ringing: ‘How can I put all my eggs in one basket?’ The answer is that different times demand differing philosophies. If your key driver is to get cost down, then the balance of your thinking may have to change. The ‘eggs in one basket’ argument may be right – don’t dismiss it out of hand. When times change again (and they will) the risk of having all your eggs in one basket may outweigh the cost advantage. You may then choose to unpick the deal you’ve just done. The mantra is: be flexible with your thinking.”
"If you’re up against it and the only way you can survive is to take 25% of costs out of the business, then having all your services from one supplier becomes less of an issue. However, there is one note of caution - put your eggs in the right basket.”
Keep strategies under review
It’s easy to forget that suppliers have access to more information on how things work in the industry than the retailer. It’s not always up to the buyer to define requirements. In a healthy two-way relationship you should expect your the supplier to come up with ideas and suggestions.
Mason closes: “The enlightened IT director will constantly review his options. He will set up relationships with his suppliers in that way to ensure a win-win for both. A supplier may well know how other customers are reducing costs, increasing capacity and improving service levels. Confidentiality may prevent them from telling you who but they should be able to tell you what."
“That’s why a supplier relationship is important. Based on a flexible approach that everyone understands so everyone knows where they stand.”
For further information please contact enquiries@paulmasonconsulting.co.uk |
|
|
|
|
|
Wyevale needed to develop an EPOS system to both meet its current retailing demands and its future growth. They asked retail systems experts, PMC to manage the new EPOS selection process, and Wyevale selected Retail-J.
Keep reading ... |
|
