Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Value Creation Scorecard" from Toolbox For Finance.
Once I read the first words of this whitepaper, I knew I had to review it. It started out as such:
"The Challenge: Efforts to increase share of wallet are often hampered by the customer’s procurement organization, which focuses on 'price' for specific transactions rather than overall 'value creation.'" There Procurement goes again...hampering the poor supplier's ability to achieve "increased share of wallet."
The entire whitepaper is dedicated to helping suppliers develop a strategy for getting their procurement counterparts to not push so hard for lower prices. In fact - and by coincidence - the topic is very similar to what I've just covered in the PurchTips article "How Expensive Suppliers Negotiate, Part I."
The whitepaper is based on a case study of a supplier, named "Baker," who "lacks the strong 'corner-office' relationships necessary to communicate the value it can bring to the relationship. As a result, account managers end up discussing the value and savings it can deliver with purchasing professionals who are rewarded primarily for driving down unit costs."
The whitepaper reveals Baker's strategy for countering the procurement negotiation tactics that it is facing: "To get beyond procurement, Baker develops a scorecard built back from the customer’s key performance indicators. Baker and the customer jointly identify specific goals for each of five performance areas."
Now, is measuring supplier performance giving a supplier the upper hand in a negotiation? Absolutely not! It is a purchasing best practice for getting the supplier to continually improve its performance and, as a result, your company's profits.
However, how the scorecard is created makes a difference when it comes time to negotiate. Just consider this excerpt: "A bit of advantage, however, does accrue to Baker as the 'first mover,' as it can work with the customer to define the scorecard metrics in a way that is sure to underscore Baker’s strengths. Suppliers can realize a strategic advantage by being a first mover, as it is in the process of defining the scorecard inputs that a supplier can influence customers to define value to the supplier’s strengths."
While openly collaborating on goals and measuring performance is recommended for any strategic supplier relationship, a supplier intentionally influencing a biased scorecard in this manner is questionable at best and unethical at worst, in my opinion. And apparently suppliers expect more out of a performance evaluation program than just the privilege of continuing business and improving their own metrics: the whitepaper quotes a Baker executive who indicates an expectation for a bigger share of the business and higher prices.
Wow! Interesting to hear how sellers think, isn't it?
The whitepaper continues an analysis of the benefits of this sales approach. Of course, it couldn't resist one last pot shot at Procurement on the last page of content, saying "the customer’s purchasing posture must be open to the possibility of non-price negotiations. In the hands of Purchasing, the [supplier scorecard] will simply be used to exert additional price pressure."
While it gets me a little mad to think that suppliers want to use supplier scorecards to raise their prices, there is so much value to understanding the negotiation tactics that will be used against you. Therefore, I recommend that you get your own copy of this whitepaper from Toolbox For Finance's Web site (registration is required and - WARNING - the checkboxes for signing up for their newsletters, email list, etc. aren't apparent. I failed to notice them before submitting my registration information).
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
http://www.NextLevelPurchasing.com
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1 comment:
As part of our discovery process, we engage the purchasing areas early on in the project to understand the specific issues relative their own business. We continually find that many customers are looking for three primary Cost Saving
Goals when implementing our solutions:
1. Contract Compliance
2. Process Efficiencies
3. Spend Analysis
We are often asked to provide best practices as part of our implementation process. Each one will addressed here at a high level:
Contract Compliance – The lack of reporting tools and resources plague many of our new customers as they look for ways to squeeze budget dollars. Many of our customers are increasingly challenged to track their spend to ensure they are leveraging established contracts. We recommend that the supplier catalogs selected by the customer be focused on their top vendors for each category. Many customers are able to determine this by analyzing their current PO Volume. We also recommend that each category have a primary supplier only and that they resist diluting their spend by adding multiple vendors to each category.
Process Efficiencies – Moving from Paper to our application inherently creates a more efficient set of business processes and control points. We typically see a reduction in Requisition to Purchase cycle times from weeks to days…and even faster in some cases…In addition, the ability for each requisitioner to be able to track their request through the entire process eliminates wasted e-mails and phone calls.
Spend Analysis – Once the entity has gone live and built some purchasing volume through our application, they can track spend very quickly utilizing our “Purchase Reports”. Instituting a practice of ongoing reviews of vendor throughput, will allow the purchasing organization to leverage the data for future pricing negotiations with those vendors.
E-procurement allows an organization to step out of the mundane paper process and become more efficient in saving money through efficient process and contract compliance.
Gravity Gardener
http://gravitygarden.com/procure-to-pay/purchasing-best-practice.html
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