"Outbuying" Your Internal Customers, Part I

PurchTips edition #264


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Are You "Outbuying" Your Internal Customers?

One of the main reasons that procurement departments fail to reach their cost savings goals is lack of compliance within the organization. "Compliance" is the degree to which employees of the organization buy from the procurement department's contracted suppliers rather than from competing non-contracted suppliers.

Why do employees - a procurement department's "internal customers" - buy from non-contracted suppliers? Often because they feel they do a better job of buying than the procurement department!

A procurement department that is well-trained and staffed by people who buy goods and services daily should do a better job at procurement than employees who have primary responsibilities other than buying, don't you think? Simply put, procurement departments need to be able to "outbuy" their internal customers.

There are seven activities that represent what "outbuying" means. We will cover three of these activities in this edition of PurchTips and the remaining four in a future edition. Here they are...

  1. Identifying a broader range of qualified suppliers. Too often, internal customers are content to stop at the first supplier they can find to fulfill a need. If convenient, they may identify two, but that still may not be enough. Good procurement departments are adept at finding, and creating competition between, the best suppliers in the market, even if that means sourcing internationally.
  2. Identifying supply risks. There are a lot of things that can cause a supplier to fail to perform adequately, ranging from the supplier going bankrupt to the supplier filling up its capacity and more. Good procurement departments know how to look for "early warning signs" and make supplier selections that pose the least risk to the organization.
  3. Negotiating. Procurement departments negotiate every day. Other departments don't. So, good procurement departments should be able to negotiate all aspects of a deal - including price as well as things like legal terms - much more effectively.

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