Taking Procurement Organization To The Next Level

Depicts what it really takes to make procurement organization strategic arm - outsourced procurement services

Helping their companies gain cost competitive advantage over their competitors is what is expected of a truly efficient Procurement Organization. For Procurement Organization to truly become strategic arm of their companies, some of the following is expected from them: Continuous Cost Reduction: They should be more efficient than their competitors in terms of buying goods and services, their rates should be more efficient than their competitors. And this should improve year on year. Along with cost efficiency the quality should also improve and the evaluation is more on Total Cost of Ownership and not only about price. All Tools and Systems in Place: They should have right kinds of tools for procure to pay process, this includes tools like Supplier Relationship Management, Contract Management, Sourcing…

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Should Be Cost Analysis – Negotiation Tool, When To Use This Weapon?

procurement data analytics | procurement services | EmpoweringCPO

There are many negotiation tools that are deployed by procurement organizations. One of the most commonly used is conducting an RFP process, where in the new vendors along with incumbents are invited to participate and in all probability after due diligence the business is awarded to the incumbent vendor at a lower price. This method may generate good results for categories where multiple vendors are available and for categories which bend towards being commodity with very low proprietary know-how and technology involved. The challenge usually is when procurement organizations have to face a vendor for a category which is very high on proprietary technology and for which there are patents filed by the vendor. In such a scenario the normal RFP process is definitely ruled…

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How Not To Conduct Reverse Auction

Procurement outsourcing companies | sourcing companies in usa

Reverse Auction is one of the most important mechanism adopted by procurement outsourcing companies for negotiation during execution of Strategic Sourcing Projects. At the same time it should also be noted that conducting online Reverse Auction is not the only remedy or solution for achieving savings. In-fact the success also depends on how well the other steps and phases of Strategic Sourcing process are executed. These steps again can be classified as those before the Reverse Auction, those involved during the actual conduct of the Reverse Auction and finally also the steps that are involved after the Reverse Auction. The subsequent section of this article elaborates about the sub steps involved during the above listed 3 phases. For each sub step the points have been…

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Procurement outsourcing Services

Spot Buying is for immediate, Ad-Hoc & one-off purchases. It’s estimated that around 40% of company’s indirect spend is from spot buy.  As a result, in most of the companies this spend is often under managed as it demands more efforts and the rewards are low. Most of the time spot buying is done by the end user and not the procurement team. These users are not trained as buyers and due to limited purchasing skills they end up buying products/services at higher cost without understanding the supplier market dynamics. Most of the firms do not have time or resources to focus on spot buys. They should leverage capabilities of procurement outsourcing services provider, a specialist service provider who can handle it in a timely…

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Lotting Strategy – Key to Successful Reverse Auction

Hammer represents successful auction| Lotting Strategy | sourcing companies | EmpoweringCPO

What is Lotting Strategy? Negotiation is one of the key steps during any Strategic Sourcing process. Procurement organizations and sourcing companies adopt different methods to negotiate prices with vendors. However with the advancement in technology and availability of various online tools, Reverse Auction is one of the most frequently adopted methods these days. Lotting Strategy is designed when negotiation is conducted using Reverse Auction tools. Lotting Strategy is a process of clubbing or grouping certain SKU’s or Line Items or Lanes so as to create lots representing unique sets of vendors. This is either based on capabilities required or certain common set of criteria. The objective is to maximize participation for each lot. Recently we conducted a Reverse Auction for Corrugated Boxes for one of…

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How to Negotiate with Courier & Small Parcel Vendors

sourcing companies in usa | procurement service provider

With the increase in adoption of online purchase, courier & small parcel industry has witnessed sudden increase in business. Along with this increase there has been change in size and weight of parcels. Most of the E commerce companies tend to pack very light weight items usually in very big size boxes, this has led to negative impact on the profitability of courier and small parcel service providers. This article talks about the probable increase that these vendors may ask and how and what to negotiate so as to negate the increase in annual cost for this category. Before looking at steps to manage price increase for courier & small parcel contracts, it is important to understand following terms: Dimensional weight pricing: UPS and FedEx…

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Leveraging Category Dashboards & Analytics to Mitigate Supply Risk

Procurement Kpi Dashboard | Benefits of Category Management | EmpoweringCPO

Commodity markets like paper, sugar, chemicals, metals, or any other segment like energy are highly volatile in terms of prices and demand / supply gaps. This impacts the production cost for suppliers where these commodities are used as raw material. These costs further percolate down to the entire supply chain. Category Dashboards are an important tool to track these price fluctuations and supply / demand gap of specific commodities or a related category. Today purchasing managers especially those responsible for Direct Materials find it difficult to manage and track their categories. As each category is dependent on multiple upstream and downstream commodities and all of them in turn have different market drivers impacting their prices. Category Dashboard is helpful as it presents all parameters and…

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Employee Relocation Services – Benefits of Fixed Fee Model

Procurement companies

Relocation Industry: The Current Scenario The economic slowdown has had a huge impact on the entire relocation industry.  The companies looking to relocate their employees are yet to recover completely. The companies are still looking at better ways to manage their relocation costs and the associated risks. As a result of this endeavor of the companies and the relocation service providers, there has been a lot of debate recently on the type of relocation policies which will be most suited for the current market scenario. The major focus of all these discussions has been the fixed fee programs and how they compare to the traditional cost plus models. So now the question remains, whether a fixed fee home sale program is a better option in…

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How To Formulate An Appropriate Price Escalation Mechanism

Upward arrow indicates mechanism adopted by Procurement outsourcing Companies that provide procurement data analytics services

What is Price Escalation Mechanism (PEM)? PEM is a process or clause adopted as part of a contract for a commodity or category when it is sourced. It elaborates the method that has to be adopted to change the total selling cost with change in cost of the key cost drivers. Furthermore, the method to formulate PEM can vary from category to category. Broadly speaking this involves identifying the set of key cost drivers contributing towards the Total Selling Price of a category. After the cost driver or cost component has been identified the next step is to design a mechanism or formula. This is to ensure the price quoted would remain valid even if there is change in the price of key cost component…

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Benchmarking rates for selection of consultant and temporary staffing |Procurement Companies | EmpoweringCPO

Sourcing of consultants and contract staff for various services and functions is one of the most important challenges faced by category managers. They are required to benchmark the wage rates of the desired roles in order to identify current market rates for specific roles and for a specific region considering the prevalent market dynamics. Along with the wage rate category managers are also expected to review the bill rate and mark ups that are quoted for consultants and temporary staffs. Contractual staffs are recruited mostly on third party payrolls, usually through a staffing agency for a specific task for a certain period of time. Whereas consulting firms are hired for a specific project or for a specific solution on defined pay rates either flat daily…

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Evaluating Vendor Qualitative Responses – Best Practices

Star rating depict vendor qualitative evaluation by gathering and analyzing data - part of services offered by strategic sourcing vendors

Evaluation of the vendor qualitative response is one of the most important phases for successful execution of Strategic sourcing process. The question is not about how to evaluate qualitative responses, it is more about how to draft and prepare the questionnaire, because as it will turn out, the situation is similar to “Garbage in, Garbage out”. Here we mean to say that right evaluation is only possible if the questions are drafted correctly and all important areas are covered. To start with the right method is to first understand the category from the point of view of the user or the client group, identify the key areas, and understand their definition of quality with respect to the category. The key here is to wear their…

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How Frequently Should You Review Spend Taxonomy?

Spend Analysis Tools and Service Providers-Strategic sourcing consulting firms

Objective of Spend Taxonomy Review: Spend Taxonomy presents the spend of an organization in an hierarchical format. This hierarchy is based on levels, usually it ranges from 3 to 5 levels. Depending on the complexity of their spend the classification structure is created. They are usually in the following format: Level 1 (Group), Level 2 (Family), Level 3 (Category), Level 4 (Commodity); where Level 1 is the highest level which is broken down in Families and Families in turn are further divided into various Categories, and Categories are divided into Commodities. The last level (Commodities) represents unique set of suppliers with same core competencies. They can also be considered to represent a unique RFP. Since the Commodities represent unique RFP's it is very important to…

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Realizing Green Procurement Goals by Switching Printing Methods

More usage of flexographic printing represents green procurement goals | Sustainable procurement strategy | EmpoweringCPO

With the increasing realization about impact of Global Warming and Carbon Footprints along with stringent regulations, it has become very critical for any organization to focus on Green Procurement in order to establish a positive image in the minds of consumers. It does not require too much of efforts to attain sustainability goals. Even minor changes in the current working scenario and buying options can lead to lower Non-Renewable energy consumption or Green House Gas emissions and help in achieving Sustainability goals. The most important factor is to be able to identify from where to begin with and what path to follow! Background – Hypothesis Testing to Improve Green Procurement Goals: Our client, a billion dollar company in FMCG sector, with an aim of improving…

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How to Negotiate with Fleet Leasing & Management Service Provider?

Strategic Sourcing Consultant | Negotiation parameters for fleet management services | EmpoweringCPO

Background Companies these days try to provide any and every support possible to see to it that their employees work in an environment which is hassle-free and which allows them to remain focused on their work. One such support that all companies offer to their field work employees is of providing a vehicle for work related travel. This support also takes care of all the reimbursements and costs related to the vehicle. For national and global companies maintaining such large fleet for their entire eligible workforce is tiresome and managing it is sometimes a challenge. To help companies overcome these challenges and also so that the companies can focus on their key competencies, this service is usually outsourced to Fleet Leasing & Management service providers.…

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How to Create Baseline in Absence of Historical Data!

Solved jigsaw puzzle - Creating baseline in absense of historical data - procurement intelligence and procurement services provider

What is Baseline? Baseline preparation is one of the most important phase during any Strategic Sourcing process. Procurement service provider completes this step immediately after the collection of historic data and after understanding of the requirement for the next contract period. Baseline can be defined as the total cost of ownership for the set of goods or services as defined in the RFP scope. The underlying hypothetical condition is that the RFP is not conducted or negotiation are not conducted and the contract is extended with the incumbent at the same pricing rate as currently applicable. Why is it important? Preparation of Baseline is important because it allows to understand the savings achieved from the Strategic Sourcing process. In the absence of Baseline it may…

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How to break a cartel in Reverse Auction process

Crack on white surface shows how strategic sourcing companies break cartel

A cartel is formed when businesses agree to act together for an anti-competitive purpose instead of competing against each other. The cartel forming companies divide the markets and customers between themselves and agree on prices. The consequences are increased prices and deteriorating quality of products and services. Several economic studies and legal decisions of antitrust authorities have found that the median price increase achieved by cartels in the last 200 years is around 25%. Chief Procurement Officers (CPOs) are daunted with the demanding task of identifying and breaking these cartels. Competition laws often forbid private cartels. Identifying and breaking up cartels is an important part of the competition policy in most countries. As Chief procurement officers (CPOs), you have to identify and break these cartels, especially…

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When Not To Take Up a Category for Strategic Sourcing

Pole with Yes and No indicate two choices - Strategic Sourcing consulting firms can help with Opportunity Assessment

To answer this question, it is much simpler first to list down the reasons as to when a specific category should be taken up for Strategic Sourcing. Ideally on an ongoing basis an organization should conduct Spend Analysis and Opportunity Assessment. Once every year is the right frequency. This helps a procurement organization to list down its plan for the New Year and identify categories that should be taken up for sourcing. The key deliverables of this exercise are: Helps identify flaws in the spend taxonomy because of changes on multiple fronts (change in product line, change in revenue, change in organization structure like mergers / acquisitions and other reasons). Helps identify low hanging fruits (categories) that can be taken up without much resistance from…

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Evaluating Vendor Pricing Responses – Best Practices

Pound, Yen & Dollar are Positioned One,two & three - during vendor evaluation & ranking as part of Strategic Sourcing Process | strategic sourcing companies

As is true the objective of every strategic sourcing project is to reduce total cost of ownership. In-fact in today’s competitive environment, the Chief Procurement Officers (CPOs) have to achieve very tight targets in terms of ($) savings. Depending on the maturity phase of the industry in which they exist these targets can range from as low as 1% of the overall spend to as high as 6% of the overall spend. And these savings are not only evaluated in terms of ($) savings from the strategic sourcing process, in fact they are actually evaluated in terms of realized savings which essentially means that the true results can only be figured out after completion of the contract period. In keeping the above points in perspective…

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Instead of Category Managers trying to find suppliers from directories -Outsourced procurement service provider can help

Preparing list of eligible suppliers before publishing an RFP or RFI is one of the most important step during execution of strategic sourcing process. The outcome of this step directly affects rest of the steps, final results as well as the final savings. Thus it becomes more pertinent to review and analyze the method that is adopted to finalize the list of potential suppliers. These days most of the procurement organizations have access to or have subscriptions for multiple databases and directories. The management in most of these procurement organizations believes that this is what is required and the category managers have everything to support them in supplier discovery. Probably the reality may be different. Just because the subscription costs are high and the number…

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How Can Procurement Organization Increase Spend Under Management?

Procurement spend analysis tools helps procurement organization to increase their spend efficiency

Low Spend under management is the most common reason for inefficiency faced by many procurement organizations. Spend under management can be defined as that part of the overall spend which is not actively managed by anyone in the procurement department including category managers and buyers. To manage actively involves: Tracking supplier performance and adopting all best practices for the category. Having valid contract in place and proactively managing it, not just renewing it year on year. With focus on Category Management aspect, understanding the relevant index and the associated changes on an ongoing basis. Keeping track of sourcing and the subsequent PO to Pay process. Building relationship with the user (client) group and understanding the requirement and changes in their priority with respect to the…

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The Graphical presentation of insights, highlights how procurement market intelligence companies can add value

To answer these questions it is important to summarize and define Procurement Market Intelligence & Analytics Services, it is also important to summarize typical role of a category manager and KPI’s of an ideal Procurement Organization. What is procurement intelligence & analytics? Procurement Intelligence & Analytics is the process of capturing and collecting relevant information from primary and secondary sources through research, this summarized information along with data available from various sources captured during strategic sourcing process or from procurement tools like Spend Tool, Contract Management System is used in supporting decisions during strategic sourcing projects and ongoing category management. This powerful insight can help in achieving reduction in Total Cost of Ownership (TCO) on an ongoing basis. Role of category manager & KPI’s of…

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Blind RFP / RFI part of procurement outsourcing providers, is depicted as game changer

What is Blind RFI? Before we dive into this topic, let us define what exactly is Blind RFI. It can be defined as the process of preparing and publishing an RFI, to the shortlisted vendors with an objective of collecting as much information as possible from vendors which includes both qualitative as well as high level pricing information without revealing the identity of the buying organization. This process is usually conducted by procurement outsourcing companies like EmpoweringCPO on behalf of their clients. Why is it required, what are the benefits? Some of the reasons for adopting this route are as follows: Some categories are very sensitive in terms of relationship of the organization with their incumbent vendors. Thus Blind RFI is a safer method of collecting…

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Multiplier Effect of Spend Reduction on Profitability & Valuation

Benefits of spend reduction depicted with an image of Category Manager on a rocket about to fire - Spend Analysis Consulting

Most of the industries and countries worldwide are facing either stagnant economy or even if they are growing the growth rate is very low. In these tough times, increasing sales is a challenge, so how come some of the companies are reporting increase in profitability, earnings and valuations. The answer lies in their sourcing capabilities, their ability to ensure year on year increase in savings and their ability to increase spend under management. For these organization Procurement & Sourcing is a strategic arm and has helped them achieve competitive advantage. Their procurement and sourcing department is more efficient and effective compared to their competitors. These best in class companies have a robust Spend Management and Strategic Sourcing Programs in place, every year they conduct spend…

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