Dare to be different, do not follow the leader and do not rationalize for the sake of rationalizing. Many retailers forget to make the most of the enormous potential of strategic sourcing. Simply buying items at the lowest price from a motley collection of suppliers is predictable and not good enough. The automatic reflex is often, “We have too many suppliers, so we are going to rationalize. Diversity and innovation often fade in the face of the power term “rationalize. .
Don’t judge suppliers based solely on revenue, and intake margin or delivery performance. See what you can really do for each other. We see a trend in which retailers are doing business directly with manufacturers, developing co-design and in which small suppliers are also taking on a larger role. This allows you to remain surprising and innovative.
- Fluff out the entire chain and shorten it
Use a value chain analysis (VCA) that analyzes and shortens the chain. The purpose of an SCC is to gain insight into the value and cost of a product’s components so that the procurement strategy is sharpened and real value is extracted from negotiations…. - Slow or fast: what do you base your choice on?
Price is a choice to choose suppliers from Asia. But that means long leadtimes, risk of loss or expensive air freight costs. Do you go for fast and innovative or slow and less trendy? You determine this from your brand as well as your revenue model. For your organization, assess which mix is best and, depending on that, what you can buy in large quantities far away or in small(er) quantities close by. Too often we see retailers who, by buying only from the Far East, make themselves inflexible and have to markdown en masse. - What value and role does the category have for the business and what is the delivery risk?
Assess the importance the category has within your portfolio and choose your delivery risk (number of suppliers, competition, dependency). With this, you determine what purchasing strategy is possible and what this means for the relationship with your suppliers. - How important are you to your suppliers?
Assess how the vendor looks at you. Do this based on relative value (percentage of sales) and on the other hand by coloring in how important your business is to the supplier (such as margin, fit, contract term). Doing this will give you a picture of how your supplier strategically looks at you and what you can get done. - Combine this information into a practical purchasing strategy
Combine your insights from steps 3 and 4 to determine what purchasing options are available based on your market vision and how important suppliers think you are. Then make clear choices and get to work. - A sourcing strategy that varies by category and supplier
Then determine your approach for each (group of) suppliers. This can mean steering purely on price, but also, for example, more intensive cooperation in product development, in marketing and in making the chain shorter and more frequent.
Rationalizing is a power term that is often used incorrectly. Determine the strategic importance of each category, dig deep into your own supply chain(s), understand which suppliers you need and make a difference by also choosing smaller suppliers and thereby surprising customers.