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Despite years of working at it, purchasing and supply management professionals continue to pare their supplier base. But what was once a relatively simple exercise of cutting the number of suppliers has, over time, evolved into a highly sophisticated practice of evaluation and analysis of supplier performance and value. While the end game remains the same, the process has changed, as the following responses to a recent SSMR reader survey attest.
Aggregating spend by division. Many purchasing managers at large companies aggregate spending across divisions to get a clearer picture of total costs but also to allow them to obtain bigger volume discounts. Moreover, by using the same supplier across divisions it's possible to give the supplier a better forecast of demand and lead times. Case in point-as a manager of strategic procurement at a major toy retailer notes, "By reducing the supplier base and aggregating the spend of the various divisions, we were able to obtain major cost savings."
Not only does the process of aggregation yield cost savings, it also gives you a great opportunity to foster a "buying" mentality. In fact, at this company, since the idea was implemented by using cross-functional teams it proved to the divisions that cost control can be achieved by this process. "A byproduct of this activity was the ability to streamline our process and make us more efficient." As an example, this manager offers, "We now plan our needs and secure manufacturing time for the projects we run by involving the supplier earlier in the process and by working with my internal customers to better forecast the needs of each division."
Enabling a more focused approach to negotiations. A purchasing manager at a midsize distributor of water sports equipment answers, "By reducing our supplier base, we were able to focus more on blanket purchase orders, sharing annual forecasts, and negotiating better terms while...