When using e-procurement tools are you just driven by a reduction in price?

November 4th, 2011

If you are, savings may be short lived and you're not thinking in terms of total cost.

The real question you should be asking is just what makes up total cost to begin with. A good friend of mine who has been a fortune 100 retail CFO helped to crystallize my thinking in this area. As such we look at cost differently today than we did a year ago. So, when we run an RFX event for our customers at SafeSourcing we think of cost in the form of three basic dimensions that cause a different type of thinking during discovery and strategy. They are as follows.

1. Price: This is the unit cost. It is expressed as an amount per unit. Price involves vendor comparison and negotiation.
2. Use: This is the consumption of a product or service. This is driven by the activities or needs. Authorization and control processes are key elements. Without these, you may not derive all of the savings from negotiating price alone
3. Mix: This is the inclusion of similar products or services to achieve a similar result. Company policies support this.

Certainly there are many more aspects to running a successful RFX like making sure the T&C’s are clear and that the process is managed through the award and contract stages. These steps or KPI’s along with the ones mentioned above collectively serve to insure that your strategic sourcing strategy uncovers all of the clues that have or may cause leakage to your sourcing events. They also proved the basis of a scorecard system that can track progress over time

We look forward to and appreciate your comments.

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