Why complete a Supplier Audit

Sample Site Audit Forms

The benefits of a site supplier audit are many. Having assurances in respect to supply, environmental compliance, safety standards and quality measures are the primary reasons we complete them. And finding the right suppliers has never been more important than today. The global recession has added additional pressures on the very survival of many companies.

How do you know that your supplier is capable of meeting their obligations or commitments? You do so by completing a site audit of their production facilities. This is often part of a buyers due diligence with large dollar spend and should be an exercised practice in your buyer / supplier relationship. Note, not every vendor you do business with warrants a site audit. Site audits can be costly when you factor in travel to the manufacturer’s facility and can be time consuming so be strategic and target vendors which are integral to your supply chain.

A physical audit is the best way to gather reliable information about your supplier’s business practices, capabilities, competitiveness, cost drivers, safety standards and service culture. From these audits you can (more…)

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Cost Savings

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.

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Spend Analysis

Part 1 – Buyers Guide to Cost Savings

As a Buyer or Purchasing Professional you should be evaluating your spend. What does this involve and how does it benefit my organization to complete a spend analysis? Basically, you are reviewing how your organization spends its operating budget or what makes up costs. To do this, one could run a historical report from your purchasing software system. It might allow you to drill down and report the top 20 or 30 vendors and how much money your company spent with them in the last 12 months. Better yet if it could provide the commodity or description of the spend then you are off to the races. If Purchasing cannot directly pull this data from a software program, your next best option is to approach the accounting department. They should be able to give you a list of the top vendors A/P sends payment to.

Once you have your list of the top 20% of your vendors in relation to how much money you spend with them annually we are fairly certain you are going to see that this list likely represents close to 80% of your operating budget. Yes the 80/20 rule will apply.  Why focus on the top 20%, well there are only so many hours in the day and as a buyer you need to focus your efforts on where you are going to make the biggest impact. Spending hours on toilet paper contracts to save $10.00 might not be the best way of utilizing your time.

Cost conscious business owners will (more…)

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