Myself and two members of my team ventured out on a supplier site visit today. We are considering moving our business for one of our strategic services to a new supplier.
The way we manage this particular service is a little unique. We use some techniques to streamline the supply chain that other companies just don’t use. In other words, we shift some of the logistics that we would normally handle to the supplier.
This is this particular supplier’s first time with such an arrangement, so they were nervous about pricing. “Will this arrangement end up being more labor-intensive than we think?” was a thought that was running through their mind.
In my less experienced purchasing days, I may have forced the supplier to come up with a price and stick to it. But, in those days, I would have been dealing with a supplier that later would not have the incentive to please me when I ended up in an inevitable jam, charged me a “padded” price in order to cover their imagined worst-case scenario, and/or – the worst option of all – added surcharges after they secured my business at which point it would be difficult for me to change suppliers.
As a more experienced procurement professional, I now know that the right decision is to do a pilot program with the supplier to ensure that both parties interests are addressed when it comes time to document our commitment to one another. In terms of pricing, our interest is to get a price which we can compare with benchmarks and base a long-term decision on where that price will remain firm throughout the agreed-upon period, with no surprise surcharges coming later. The supplier’s interest is to make sure that the currently unknown costs are covered when those costs become clear.
A pilot program – or trial period, if you will – allows both of us to get closer to our objective.
Are you “taking it slow” to get it right? Or are you rushing into relationships that will likely involve surprise supplier surcharges?
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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