Today’s post is by Mark Davis; Sr. Vice President and COO at SafeSourcing.
We have spent the better part of the last week following the sourcing activities of Ray and John, two procurement professionals who were running containerboard sourcing projects for their respective companies. Ray and John took different approaches to understanding the containerboard market, suppliers, company atmosphere and in determining the goals for their projects. Each executed their strategies and now needed to clearly understand and evaluate their results.
Ray’s strategy was focused on his three big incumbents and in getting them to improve their pricing. Ray was not prepared to ask or collect much additional information from his vendors nor was he able to properly research the market and his company landscape to learn what was going on that he was unaware of. Ray was able to garner some limited information relative to his suppliers “green” initiatives and was pleased to learn that all three incumbents were at some level of implementing policies and offerings that were aligned with his company’s new plans as well.
On average Ray was able to achieve locked in savings for 6 months and also avoided the 8-12% increases he had understood would be coming. Ray was pleased with these results, however, because he had not talked to his finance department in a while he had no idea of their move to requesting Net 45 terms from all suppliers was only a few weeks away from being implemented and that he would have to have a conversation with his suppliers that would have had much more leverage prior to negotiating these new contracts. Also, because Ray chose to focus on the three big incumbents, the divisions using local suppliers were moving forward with business as usual and much of what Ray was able to save was going to be lost in increases in the outlying divisions.
The final known metrics that Ray’s project was able to achieve were as follows:
1. Project Start Date
a. January 7, 2013
2. Number of Suppliers Involved
3. Percent of spend being reviewed
4. Amount of time spent doing research to in order to understand the project
hours per week reading industry publications and blogs
a. 7.5 hours reviewing current contracts and invoices
b. 15 hours spent researching other suppliers
c. 2.5 hours hearing about new company “green” initiatives
d. 24 hours negotiating final versions of updated contracts
5. Additional Information Collected
a. Green Initiatives from Suppliers
6. Amount of time spent communicating with suppliers
a. 18 hours
7. Number of Bids and Changes
a. Average of 3 bids each – 10 total bids and changes
8. Savings Achieved
a. 3% plus average of 8-12% predicted future increases
a. Net 30
10. Contract Length
a. Two year contract with reviews against Indexes every 6 months
11. Number of additional suppliers supplying outlying divisions
a. 9 Suppliers representing 11 divisions – These agreements were not included in the project scope
12. Project Complete Date
a. March 6, 2013 last contract was finalized
Ray’s goals were focused solely on getting a reduction in pricing from his three major incumbents and as a side objective, understanding some of the “green” options and initiatives that they were either currently offered or would be offered in the near future. While it could be argued that Ray achieved his goals, the case could also be made that the expectations he set and results of this project could have been much greater and could have resulted in additional value to his company.
Stay tuned tomorrow as the story of Ray and John concludes and we review the results John was able to achieve with his efforts.
You may be like Ray but desperately want to operate like John but without the staff or the time to dedicate at that level.
At SafeSourcing we understand Ray’s frustration and that is why our customer services team works with you to achieve great results while removing much of the work from your plate. For more information on how we can help you with your sourcing projects, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today
We look forward to your comments.