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Save Now, Source Later

Organizations may be unwilling to pressure vendors on price in the middle of a global supply chain crisis. However, there are plenty of ways for data-driven businesses to initiate savings efforts without going to market. Here are a few of them:

Bypass Spending

If there are preferred vendors with whom the organization has already negotiated discounts, a simple analysis can show whether the business is actually using the preferred vendor, or whether there is still bypass spending. This behavior can be broken down by business unit and presented to the executive team for action. When one business unit is more compliant than another, which is almost always the case, that spurs competition at a level where decisions will be taken and followed.

Contract Compliance

If the organization has negotiated a contract with a vendor, that is no guarantee that the contract price is being charged. Conducting an invoice-level analysis of contract rate compliance to identify overcharges can produce large savings in recovered costs.

Note that vendor behavior may not change even when an overcharge is reported and repaid. In many cases the vendor can’t change its behavior due to systemic problems, and the same overcharge will occur every month. So a compliance effort typically returns value every month.

Differential Pricing

Chances are the organization is buying some of the same items from multiple vendors. The chances are equally good that different prices are being paid for that same item. Just switching from higher-cost to lower-cost vendors can reap “silent” benefits without any disruption.

Channel Clarity

The organization could be spending far more with a supplier than it realizes. For example, if the organization buys computers through a distributor as well as directly, it loses visibility on the total amount spent with the actual supplier (say, Dell). It could well be that the organization’s gross spending with Dell far exceeds the discount level provided either directly by Dell or indirectly by the distributor, yielding a significant savings opportunity.

New Contracts

The organization may have contracts with some vendors, but not with others. Usually not having a contract means paying a higher price, typically the retail price. Vendors without a contract are almost always delighted to negotiate a contract and provide a discount, since a contract typically means more predictable sales. Even a modest discount on high-priced or high-volume purchases can produce large savings.

Existing Contracts

If the organization has a short term contract with a vendor, and the relationship is good, consider extending the contract. Vendors are always concerned about losing customers, so the prospect of a longer contract could enable the vendor to offer a better discount. Sometimes a small contract extension can bring about a large benefit.

Price Comparison

Even if the organization doesn’t want to go to market, there are “soft” ways to do so. For example, there may be items or services with standard specifications that are available from competitive vendors. In that case, why not find out if a competitor can save you money? Share some (or all) of your current pricing and see what kind of discount they can offer. It may seem odd or unsettling to share current pricing with prospective vendors, but there’s usually no reason why those prices should be private. Privacy only benefits the incumbent vendor.

If competitive vendors want your business, they’ll offer a meaningful discount on the current price. If they don’t, then you’ll know you’re already at or close to the market price. The incumbent vendor can be asked to match prices if you want to avoid switching costs.

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