Sourcing Problems In A Slow Economy
PurchTips edition #199
By Charles Dominick, SPSM, SPSM2, SPSM3
Is The Slow Economy Causing Sourcing Problems?
In difficult economic times, suppliers usually behave desperately and will do anything to earn business. This time, it's different.
Conventional thinking would lead one to believe that the current slow economic conditions would result in high RFP/tender response rates. That has not been the case.
Why would suppliers not eagerly try to earn orders when many businesses are clearly struggling? Are onerous strategic sourcing processes of recent years to blame?
"With the economic conditions now... almost all suppliers are strained when it comes to time and resources," explains Kathleen Daly, Project Analyst for Source One Management Services, LLC. "Often sending out a complicated and lengthy RFP results in suppliers being unwilling to engage in the sourcing process if they feel that the response will take up too many resources or if they feel they don't have a solid chance of having the business awarded to them."
Strategic sourcing has often been characterized by suppliers as a problem-filled process that involves arms-length communication with buyers during the process and limited to no feedback afterwards. Noting that a restrictive sourcing process can limit the value that suppliers propose, Daly argues that "when suppliers are engaged in an arms-length RFP process, buyers tend to receive an arms-length result."
A timeless purchasing principle is that more competition results in lower costs. So, naturally, you want to attract all the top suppliers.
Therefore, in today's economy, you need to motivate your suppliers to respond to your RFP's. Motivating suppliers may mean making some changes to your sourcing approach. Specifically, Daly recommends having suppliers give online or in-person presentations before they are asked to prepare written proposals.
Though such an approach may seem like it will extend the sourcing process, Daly has found that a more collaborative, less secretive approach helps to motivate the best suppliers to bid on business and deliver more value to the buying organization. This underscores the importance of always having a sourcing strategy that is appropriate for current economic conditions. Economic conditions change over time and problems will arise if your sourcing approach doesn't change accordingly.
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