Procurement experts are the essential medium between customers i.e. you and your suppliers, thereby providing a competitive edge to your organization. Supplier and purchaser functionality differs, giving each variant to excel and get the best out of the negotiations.
Suppliers have a distinct power where they are able to increase prices of the goods or services in high demand. As we saw during the initial days of COVID-19, a lack of personal protection equipment brought about a huge surge in their production. With insufficient equipment, the price was hiked up giving the supplier as much control as possible. Hence we see there are various factors that affect how much power a supplier can hold. The various factors that affect the bargaining ability of the suppliers are:
- Size and strength of the supplier
- Number of suppliers available for a particular product/service
- Demand for the product/service
- Cost of finding an alternative supplier
On the contrary, buyers can have an upper hand at times and manage to get the best value from their supplier. Getting the price of goods in demand reduced could be a factor of:
- Buyer availability in the market
- Cost of finding an alternative supplier
Ultimately procurement officers try to take into account these metrics and hold suppliers to a standard in order to reduce cost. In addition to cost reduction, they work to find innovative and agile solutions, mitigate any foreseeable risk, and many such issues of high importance.
Procurement experts generally tend to identify and analyze the spending of any organization and its supplier base to align their business requirements. This is done to ensure that the right suppliers are identified. Those that will provide the best value to the organization. This enables the organization to continuously reach higher cost savings as well as ensure a better relationship between the buyer and the supplier.
Secondly, they can situate between the organization’s business objectives and its sourcing strategy, giving the business a chance to reach higher performance and higher efficiency, whilst minimizing supply chain risks.
Thirdly, by optimizing the critical suppliers through effective strategic sourcing the experts will cross-check suppliers’ profiles as well as their core abilities to generate the highest value at the lowest possible costs. Supply-side optimization can enable cost reduction in parallel by implementing the tools in order to match the right suppliers with the right contracts.
Lastly, procurement can help with the building of long-term relationships with the suppliers by reinforcing the suppliers’ core abilities as well as ensuring the right suppliers have been matched with the right sourcing objective. This in turn helps to create harmony between the organizations and the suppliers.
Through active monitoring of KPIs, measuring and benchmarking performance, and organizing development programs for non-performing suppliers, procurement helps with supplier profile optimization to help select the best suppliers for any organization. This achieves the required purpose of cost reductions and risk reduction.
