It seems in every sector there’s always someone or some company looking to take the shortcut in bidding wars and enter into the tendering process competing on price alone.
Newsflash!
You can’t and nor should you.
There’s an issue with it though…
It’s for public contracts.
Don’t you think this should apply equally to the private sector?
In a nutshell, yes it should.
Tell you why…
When you bid on a public sector contract during the tendering stage, every company is considered.
Not just on price, but you’ll certainly make your proposal stand out if it’s considered abnormally low.
What’s abnormally low?
Hard to define but the decision makers can spot it a mile out. If all bids are in the tens of thousands and there’s you with a proposal of a few grand, it’ll stick out like a sore thumb.
When it’s spotted, the bidder is contacted to explain themselves. What the Contracting Authorities are looking for during an explanation stage of a bid that’s lowballed is satisfactory evidence that you’re complying with environmental, social and labour laws.
This brings into question supply chain management.
Will you be able to provide evidence that you’re sourcing products in a sustainable way?
If you’re using overseas suppliers for your materials, do you have audits to prove there’s no slave wages being paid to employees; that the working conditions are in line with health and safety standards, and that there are no children in the workforce?
Supply chain management is a tough battlefield. It’s easy to source cheap materials from around the world, but the bottom line is you just can’t do that.
Your suppliers are your responsibility. Funding unethical businesses overseas won’t get you any public contracts.
This is why the private sector should be adopting the same principles. There’s many a thing the government do that only bring red tape and more administration, but in the case of the updated Public Procurement Policy, they’ve took a step in the right direction.
It makes sense that to eradicate the poverty in third world countries, we source while supporting developing.
The Best Procurement Policy Should Outline Supporting The Supply Chain Long-Term
When you’re sourcing products, think about how long your supplies can realistically last. That’ll give you a good idea if you’re doing it right.
Say for example you’re in the clothing sector, bulk shipping garments from overseas and selling them wholesale or even job lots on eBay.
· The staff need sufficient wages to live on
· The factory requires sufficient profit margins to source materials
· The materials providers need sufficient margins to continue their operations
There’s a further profit margin for the shipping of goods, and you’ve packaging to consider too.
It adds up to a lot of expense, but if you get it wrong, it’ll be even heftier.
This is why it’s fundamental to get your pricing right. Sell at too low a price and you can’t support the supply chain longevity.
Business sales contribute to quite a few businesses. Often worldwide too given the nature of how the digitised businesses operate today.
Do you think your suppliers really value your trade?
Image courtesy of masterstv.com.
Leveraging Your Suppliers As A Business Asset
Do you consider your suppliers to be an asset to your business? You should, because they really are.
All too many SMBs get this entirely wrong. They put so much focus, and rightly so, on their customers ensuring customer service is top-notch and every customer gets value for money.
Guess what?
That’s what your suppliers are doing for you. You’re their customer and they want to be doing right by you and ensuring you get value for money.
Or at least they should be. If they’re not, it’s perhaps not all on them. Some suppliers are a nightmare to work with and if you find that to be the case, it’s likely because you don’t have a good solid working relationship with at least one key decision maker in your suppliers business.
When you’re dealing with suppliers, they’re an extension of your network.
You have a network right?
We’ll assume you do because not many businesses prosper without developing a network of professionals. Some are in the same industry; some are in the finance sector, others in the fundraising, some in marketing etc.
Your business will have connections. It’s key to business growth. Without connections, you’re a standstill and not experiencing growth.
In the supply chain sector, the managerial positions go to those with experience because with the experience they’re networked.
They know the suppliers, they know the industry, and they know the value for money they can get.
The best in the game drive cost savings because they’re able to strike a balance that serves the needs of both businesses – your business and that of the supplier.
Every business needs a profit margin.
The worst customers for suppliers to deal with are the barking mad ones that want stuff at knockdown prices. Always trying to strip the fat away from the bone and eat into the profit margins of their suppliers.
Big companies might be able to get away with this strategy because they have huge volume, but you can guarantee, if the supplier isn’t getting a healthy profit margin, the customer service will be next to none.
You get what you pay for.
So the lesson is this… when negotiating with suppliers, consider the value you can bring to the table. Yes, by all means be a strong negotiator but go to the table with realistic expectations.
Everyone wants profit.
The best deals are met in the middle. Where you get a good deal and value for money and your supplier gets a healthy profit margin. Both businesses keep profits.
To get negotiations off to a good start, you need a good working relationship. It’s the same with your customers as it is with suppliers. Treat them well and they’ll reward you with loyalty.
Loyalty is what you need from your suppliers because without them, you’ll be without supplies and constantly at the RFQ (request for quotation) stage to get supplies and services for your business.
If you consider your business small to medium sized, and lacking the professional networks to get to the negotiating table, partner with someone who is.
At The Procurement Group, our specialists are well connected in a variety of verticals with years of experience networking with those in the know.
If you’re adamant on taking care of procurement yourself, we’ll give you some tips to steer you in the right direction.
1) Â Before approaching, send a LinkedIn request
LinkedIn is the social network of the established experts. If you’re not known to someone through LinkedIn, you’re at a huge disadvantage.
The first stage of negotiating is not about figures. It’s about getting to know who you’ll be speaking with and the best way to do that is to enter their professional world.
Get to know them through LinkedIn first, follow them elsewhere and find out what they share online.
That’ll give you some insights into who you’ll be speaking with and help you to find some common ground.
2) Â Extend your network with multiple suppliers
Don’t just target one supplier when you’re researching. Establish who the right people are that you’ll be dealing with. Once you have a few people, you’ll get a feel for who the right person is for you to speak with.
It’ll be the person you feel more confident to pick up the phone and speak to, or to meet up with at a networking event. Even if they’re not the right fit, you can keep the meetings and conversations friendly because each person in your network has an extended network that could help you.
3) Â Get your pricing right
You can’t go into talks looking to get a rock bottom price. It’s not going to happen. You need to have your maximum and minimum pricing in mind. Minimum pricing for supplies because you need to be supporting your supplier’s margins to ensure continuity of service.
Drive too hard a bargain and you’ll fall flat. The only time hard bargain deals are successful is when there’s multiple thousands in profits at stake.
4) Â Find the middle ground
Find a good profit margin for you and your supplier and then work out the kinks in any service level agreements. What you don’t want to do is get a lower price because the level of service is reduced so your client can retain as much profit as possible.
Both sides need to be able to consider cuts in the margins. If any party is hesitant, it’s going to be a difficult working relationship when only one side is making changes, and the other making swaps.
5) Â Keep in contact throughout your agreement
You’re your suppliers’ customer and whilst it doesn’t constitute constant communication, at least keep in contact in some form such as an occasional email to find out how they’re getting on.
The best time to contact a supplier is when you have to buy anything. Even if they don’t supply it, they may know someone who does and give you advice on dealing with them.
Your supplier becomes a part of your network. Nurture them as such and your long-term contracts will see you get better value from them.
Do you consider your suppliers to be an asset to your business? You should, because they really are.
All too many SMBs get this entirely wrong. They put so much focus, and rightly so, on their customers ensuring customer service is top-notch and every customer gets value for money.
Guess what?
That’s what your suppliers are doing for you. You’re their customer and they want to be doing right by you and ensuring you get value for money.
Or at least they should be. If they’re not, it’s perhaps not all on them. Some suppliers are a nightmare to work with and if you find that to be the case, it’s likely because you don’t have a good solid working relationship with at least one key decision maker in your suppliers business.
When you’re dealing with suppliers, they’re an extension of your network.
You have a network right?
We’ll assume you do because not many businesses prosper without developing a network of professionals. Some are in the same industry; some are in the finance sector, others in the fundraising, some in marketing etc.
Your business will have connections. It’s key to business growth. Without connections, you’re a standstill and not experiencing growth.
In the supply chain sector, the managerial positions go to those with experience because with the experience they’re networked.
They know the suppliers, they know the industry, and they know the value for money they can get.
The best in the game drive cost savings because they’re able to strike a balance that serves the needs of both businesses – your business and that of the supplier.
Every business needs a profit margin.
The worst customers for suppliers to deal with are the barking mad ones that want stuff at knockdown prices. Always trying to strip the fat away from the bone and eat into the profit margins of their suppliers.
Big companies might be able to get away with this strategy because they have huge volume, but you can guarantee, if the supplier isn’t getting a healthy profit margin, the customer service will be next to none.
You get what you pay for.
So the lesson is this… when negotiating with suppliers, consider the value you can bring to the table. Yes, by all means be a strong negotiator but go to the table with realistic expectations.
Everyone wants profit.
The best deals are met in the middle. Where you get a good deal and value for money and your supplier gets a healthy profit margin. Both businesses keep profits.
To get negotiations off to a good start, you need a good working relationship. It’s the same with your customers as it is with suppliers. Treat them well and they’ll reward you with loyalty.
Loyalty is what you need from your suppliers because without them, you’ll be without supplies and constantly at the RFQ (request for quotation) stage to get supplies and services for your business.
If you consider your business small to medium sized, and lacking the professional networks to get to the negotiating table, partner with someone who is.
At The Procurement Group, our specialists are well connected in a variety of verticals with years of experience networking with those in the know.
If you’re adamant on taking care of procurement yourself, we’ll give you some tips to steer you in the right direction.
1) Before approaching, send a LinkedIn request
LinkedIn is the social network of the established experts. If you’re not known to someone through LinkedIn, you’re at a huge disadvantage.
The first stage of negotiating is not about figures. It’s about getting to know who you’ll be speaking with and the best way to do that is to enter their professional world.
Get to know them through LinkedIn first, follow them elsewhere and find out what they share online.
That’ll give you some insights into who you’ll be speaking with and help you to find some common ground.
2) Extend your network with multiple suppliers
Don’t just target one supplier when you’re researching. Establish who the right people are that you’ll be dealing with. Once you have a few people, you’ll get a feel for who the right person is for you to speak with.
It’ll be the person you feel more confident to pick up the phone and speak to, or to meet up with at a networking event. Even if they’re not the right fit, you can keep the meetings and conversations friendly because each person in your network has an extended network that could help you.
3) Get your pricing right
You can’t go into talks looking to get a rock bottom price. It’s not going to happen. You need to have your maximum and minimum pricing in mind. Minimum pricing for supplies because you need to be supporting your supplier’s margins to ensure continuity of service.
Drive too hard a bargain and you’ll fall flat. The only time hard bargain deals are successful is when there’s multiple thousands in profits at stake.
4) Find the middle ground
Find a good profit margin for you and your supplier and then work out the kinks in any service level agreements. What you don’t want to do is get a lower price because the level of service is reduced so your client can retain as much profit as possible.
Both sides need to be able to consider cuts in the margins. If any party is hesitant, it’s going to be a difficult working relationship when only one side is making changes, and the other making swaps.
5) Keep in contact throughout your agreement
You’re your suppliers’ customer and whilst it doesn’t constitute constant communication, at least keep in contact in some form such as an occasional email to find out how they’re getting on.
The best time to contact a supplier is when you have to buy anything. Even if they don’t supply it, they may know someone who does and give you advice on dealing with them.
Your supplier becomes a part of your network. Nurture them as such and your long-term contracts will see you get better value from them.
Image courtesy of poacpa.com.
The Business Case Triage Of Good Procurement In Action
Efficient purchasing in any business is essential to stay within budget and ensure that only necessary materials and supplies are being purchased.
To do that, there’s a minimum trio involved in putting together a business case for purchasing.
1. Â Staff
All purchases begin with the user. Employees in any department will first identify what they need. In most cases, the suggestions are directed to supervisors, team leaders or line managers. These people represent the end user and direct the suggestions to upper management.
2.   Finance
Finance departments can’t just approve any purchase. In many situations, it’s a completely new purchase being introduced to the business, in which case, the business case must be made to justify the expense.
Finance departments are very prudent with funds available, ensuring they are only spent on necessary materials, or tools that will benefit business objectives.
When it’s something entirely new, funds should first be directed towards market research and this is where things can go wrong – when this stage is skipped.
Approaching any market blindly without sufficient knowledge of typical costs will result in paying a higher price, and often negligible contracts with minimum value due to a lack of market knowledge.
It happens in the copier industry, telecoms sector, and many other services where finance departments skip the most prudent part of a buying process. Assessing the market to find out what’s available, at what price, what contract options are available, and service level agreements. SLAs and contract finalisations is when negotiations should always be happening. Everything’s negotiable!
When approaching any unfamiliar sector, it’s best to assign a buyer to research the market and then compile a report detailing viable options before proceeding beyond this stage.
The core responsibilities on all finance departments are always to:
Assess the proposals from end users. It’s the responsibility of users to present the business case explaining the benefits of whatever’s to be bought, and explain the benefits of the purchase ensuring it supports business objectives.
Once users have made their case and sold it’s up to finance to assess budget implications and the financial impact of any purchase to ensure it’s viable.
Funding sources will be identified and a budget assigned to a buyer.
3.    Buyers
With the budget assigned, it’s then the buyer who has the final responsibility of ensuring they can source services or products within budget, and agree to contractual terms with suppliers.
Negotiation in the final buying stage is prudent.
Before final purchasing decisions are made, especially when the contract terms are long and expensive, input should be sought from end users prior to any agreements being formalised and finalised.
That’s the trio that should always be involved in a buying process and never solely left to one person in a finance team. Chances are that they will have no idea what the end user requires.
Every employee is a key stakeholder in all businesses and should be given the opportunity to provide input into what they feel would help them work more efficiently. It’s then up to your line managers to present viable solutions to finance. Finance should then review the business case put forward by line managers, sign off on it, identify funding sources and assign a budget to a buyer.
If your business does not have the finance teams or buyers in place, there’s a high chance you’re overspending due to the lack of resources put into purchasing.
Should that be the case, there are likely to be areas where you could significantly reduce your operational costs, by putting value adding contracts in place, sometimes cheaper than existing providers have you on, while maintaining quality and without disruption to service.
Should you find your expenses getting out of hand, our savings audit will highlight where your business is over spending.
For businesses with fewer employees, lacking the resources from those in finance and buyers who know their way around contractual law, it’s often best to bring in outside help from a professional procurement service.
Efficient purchasing in any business is essential to stay within budget and ensure that only necessary materials and supplies are being purchased.
To do that, there’s a minimum trio involved in putting together a business case for purchasing.
1. Staff
All purchases begin with the user. Employees in any department will first identify what they need. In most cases, the suggestions are directed to supervisors, team leaders or line managers. These people represent the end user and direct the suggestions to upper management.
2. Finance
Finance departments can’t just approve any purchase. In many situations, it’s a completely new purchase being introduced to the business, in which case, the business case must be made to justify the expense.
Finance departments are very prudent with funds available, ensuring they are only spent on necessary materials, or tools that will benefit business objectives.
When it’s something entirely new, funds should first be directed towards market research and this is where things can go wrong – when this stage is skipped.
Approaching any market blindly without sufficient knowledge of typical costs will result in paying a higher price, and often negligible contracts with minimum value due to a lack of market knowledge.
It happens in the copier industry, telecoms sector, and many other services where finance departments skip the most prudent part of a buying process. Assessing the market to find out what’s available, at what price, what contract options are available, and service level agreements. SLAs and contract finalisations is when negotiations should always be happening. Everything’s negotiable!
When approaching any unfamiliar sector, it’s best to assign a buyer to research the market and then compile a report detailing viable options before proceeding beyond this stage.
The core responsibilities on all finance departments are always to:
Assess the proposals from end users. It’s the responsibility of users to present the business case explaining the benefits of whatever’s to be bought, and explain the benefits of the purchase ensuring it supports business objectives.
Once users have made their case and sold it’s up to finance to assess budget implications and the financial impact of any purchase to ensure it’s viable.
Funding sources will be identified and a budget assigned to a buyer.
3. Buyers
With the budget assigned, it’s then the buyer who has the final responsibility of ensuring they can source services or products within budget, and agree to contractual terms with suppliers.
Negotiation in the final buying stage is prudent.
Before final purchasing decisions are made, especially when the contract terms are long and expensive, input should be sought from end users prior to any agreements being formalised and finalised.
That’s the trio that should always be involved in a buying process and never solely left to one person in a finance team. Chances are that they will have no idea what the end user requires.
Every employee is a key stakeholder in all businesses and should be given the opportunity to provide input into what they feel would help them work more efficiently. It’s then up to your line managers to present viable solutions to finance. Finance should then review the business case put forward by line managers, sign off on it, identify funding sources and assign a budget to a buyer.
If your business does not have the finance teams or buyers in place, there’s a high chance you’re overspending due to the lack of resources put into purchasing.
Should that be the case, there are likely to be areas where you could significantly reduce your operational costs, by putting value adding contracts in place, sometimes cheaper than existing providers have you on, while maintaining quality and without disruption to service.
Should you find your expenses getting out of hand, our
savings audit will highlight where your business is over spending.
For businesses with fewer employees, lacking the resources from those in finance and buyers who know their way around contractual law, it’s often best to bring in outside help from a professional procurement service.
Image courtesy of supplychainstation.com.
