Part 2 – Buyers Guide to Cost Savings

Our last post on spend analysis was part 1 of our cost saving series and we are going to stay focused on this topic by providing areas to save money both within and outside of your organization.

We noted the importance of going after your class “A” Vendors or your top 20 which account for 80% of your spend. This is our target list and we will review how as a Buyer you can better leverage your vendors experience to help you generate cost savings.

In this scenario, your pricing on products you purchase is acceptable and lets assume they are under contract. Now where do you turn to find the next round of savings? More cost savings can be found in your suppliers’ organization. Pardon…you want me visit my suppliers and tell them what they can do to reduce costs so I can get a better deal? Not at all, we are suggesting you get into the heads of their technical and support staff to mine their knowledge, experience and ideas.

Your Vendors are in an excellent position to help review your processes and reduce your costs for the following reasons:

  1. They have a long list of clients which use their product and have experience and knowledge of potential best practices. This can be useful information. While asking vendors to divulge proprietary information is not appropriate, you can ask for suggestions on what we can do better. Keep in mind Vendors would rather you seek cost savings elsewhere versus from their pocket so they should be quick to jump on this approach.
  2. The technical knowledge of their own products. There is no better source to suggest alternative specifications or practices which can reduce expenses without sacrificing quality.
  3. They are a known entity.

How do you approach this?

Just because you are the client does not entitle you to direct access to a vendors staff, however if you are a large enough client you will have some leverage and can offer to even split any gains if you are not a large enough buyer to warrant making this request. Be prepared to provide justification as to why you need their insight as understanding your motives is key to making this effort a success.

The following blueprint will help you achieve this goal.

Step #1 – Begin with your Sales contact

Initial contact with any vendor is by way of your sales contact. They will be motivated to assist in keeping you the customer happy so prepare your justification and present it to them. Articulate the goal and objectives. For example, we must cut 5% from our operating budget in the next year. Your company has been identified as a key vendor and we are hoping to solicit your technical assistance in meeting this objective and we hope you can make them available for this review. Ensure all parties understand that this is a purchasing initiative.

Be clear about the objective. You are under contract and it is not about grinding down their selling price. It is about better utilization of their product, becoming more efficient and eliminating waste. To make this work both organizations need to be involved.

If all are on-board arrange for a meeting by necessary parties from both sides to brainstorm and create a plan as to what areas have the biggest potential.

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Filed under: Negotiation

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