When embarking on a holistic spend review, it’s crucial to deploy the right strategies and tools. The focus should be on a time-to-value perspective. The tools in question include Request for Proposals (RFPs), Request for Quotes (RFQs), Direct Negotiations, and Group Purchasing Organization (GPO) implementation.
RFPs are best suited for categories that are strategic to the organization and not solely price-focused. They help identify additional market elements and ensure the supplier meets the minimum criteria. However, a broad supply base is necessary to foster competition.
Strategic Sourcing vs. GPO Implementation
The decision between strategic sourcing and GPO implementation depends on the leverage of spend within the category. GPOs offer the advantage of leveraging all member spend to drive lower pricing. However, the time investment and potential value from a full-scale sourcing process should be considered.
RFQs, on the other hand, are price-focused and best applied to tactical categories where suppliers offer similar products or services. Direct negotiation strategies are typically used when there’s a limited supply base, a high value on the incumbent supplier relationship, or a high level of market intelligence.
The Benefits of GPOs
GPOs offer several benefits, including leveraging spend across all members for continuous cost savings and value. They also manage the supplier relationship and overarching contract, ensuring performance objectives, KPIs, and SLAs are met. However, if end-to-end supply relationship management is crucial, a GPO may not be the best fit.
In today’s environment, finding cost savings and realizing them quickly is paramount.
