Updated: Aug 19, 2022
Your supply base functions as an integral segment of your business. Without the raw tools you need to provide your service or product, the conversation with customers or clients goes nowhere.
The supply base then, is a key pillar of your offering, but it is also frequently one of a business’s biggest overheads. Gilbert Mackay, Sunfish co-founder and Procurement Practice Lead shares some thoughts on how to optimise these costs and relationships.
So, it’s worth asking yourself how to get the best value from your supply base. This doesn’t necessarily mean cutting down on the overheads: a good supplier is usually worth the price. But rather it’s a question of finding where that value is and making the most of it, whilst identifying the elements in your supply base that could be improved or even jettisoned altogether. If you can achieve the same business results on a smaller spend, it’s as good as growing turnover and net profit margin – particularly useful as we find ourselves in the midst of a period of economic uncertainty.
There are a few simple techniques around identifying the best sources of value in your supply base. Let’s take a look below.
Effective Contract Management
Renewals, end-dates, small print ... Keep an eye on the terms of the contracts you have with your suppliers. Some will auto-renew, some will have end dates, some will have specific stipulations around the termination process. The old adage about reading the small print comes into play here as well.
Contract management software has emerged as a fast-growing market that promises effectivesupply chain management. A beneficial strategy for companies looking to digitalise, it is also worth asking if purchasing contract management software will save you the time and money elsewhere to make it worth the investment.
Know the Market
Has another supplier entered the market since you last checked?
Is there a newer, cheaper, faster, or more efficient way of doing things now? It’s the nature of the digital era that disruptors and innovators are emerging every day.
Utilities and telecoms are one example – a combination of de-regulation and market forces has meant a host of new entrants, ranging from automation and AI to 5G, many with highly competitive offers. Think about what other suppliers can give you that others can’t – and what your current supplier gives you that no one else can (remember - the grass isn’t always greener on the other side and don’t forget to factor in any cost & risk in changing suppliers). What is essential to your business and what is simply a ‘nice-to-have’?
Commitment vs. Risk
Many suppliers will give you significant discounts for long-term contracts. But the flipside of course is the lack of flexibility those contracts might offer.
Your business might move in a different direction, subsequently rendering the supplier less valuable to your core offering. You might find that the supplier’s product or service isn’t up to scratch, but the T&C’s of the contract makes an exit point a lot harder to find. Consider negotiating exit clauses in any long-term contracts you draw up otherwise you could find yourself stuck with a supplier you don’t need or having to pay large sums to exit.
For small-to-medium-sized businesses, particularly those who haven’t been in their specific business field very long and where a forensic review of costs maybe has yet to happen, analysing your fixed and variable costs and associated supply base can make a huge difference. If growth has stagnated, even a small shift in cost reduction will make a big difference to cashflow and business operations.