Managing Indirect Spend. Joe Payne
to them. An end user could even tell his or her favorite supplier, “Do not worry about this initiative. We will never change vendors.” Such a response could upset negotiations with the incumbent further down the road.
Most times, a brief introduction to the project and an explanation of what you are trying to accomplish is all the prompting an end user needs to engage with the process. If you sense that end users are still reluctant to participate, however, you can take several steps to ensure they are on board.
First, let them know that they are not being singled out. It is important for them to understand that there is an effort to reduce costs and improve bottom‐line profitability across the organization. Their participation is critical to the process.
Second, let them know that the success or failure of the project is tied directly to their engagement and collaboration. Be direct and make sure they know you recognize that they have the power to upset the applecart, but also that you are not going to allow it.
Third, tie the project to the end user's list of objectives for the year. If there are some end users who do not report to you, work with their direct supervisors to include this project in the next performance review.
Fourth, make sure they understand that a well‐managed, collaborative process will ensure their suppliers have a fair shot at retaining or growing their business with your organization. This translates to a healthier relationship where both sides benefit from the exercise.
If it is not clear that you have end‐user support after initial discussions, it is critical to engage senior level management to enlist the support you need. Otherwise, all the work you do after this step could go to waste.
Understanding the Project Category
Now that you have end users engaged, it is time to mine them for information. It is likely that the end user is working with the incumbent supply base for a given category on a regular basis, fielding offers and sales pitches from alternate vendors. They probably have at least a basic understanding of the marketplace. This base knowledge has advantages and disadvantages. The key advantages are that the end user can give you a detailed picture of how suppliers work with your organization. They can also give you a good historical perspective on supplier relationships.
What end users probably cannot give you (though they may think they can) is an objective perspective of the marketplace as a whole. After years of managing a category the same way, many people stop exploring alternatives and become closely tied with existing processes. Changing suppliers at a substantial cost savings may be possible, but end users could be reluctant because it would mean they would have to work with the supplier a different way. Even if the new process is more efficient or would mean less work for end users, there could be reluctance if they perceive that they would need to change their internal processes.
It is important to note that it's unfair to characterize all end users as subjective thinkers that care only about maintaining the status quo. Many are objective, have done their homework, and have a great understanding of the marketplace and the opportunities available. Others (whether or not they possess detailed information) are not happy with current suppliers and are ready for a change. Regardless, the critical consideration here is that you, as the project lead, remain objective and do not become tied into old ways of thinking about supplier relationships specifically or the marketplace in general.
As we detailed earlier in the chapter, there are several types of end users. Some could be buyers, others could be Finance people, and still others could be engineers or members of your organization's Operations team. Based on the category and the role of the end user, the types of questions you will want to ask can be very diverse. In Part Four of this book, we detail specific project examples and provide a recommended list of end‐user questions for those examples. In general, there are eight categories you should review with your end users.
1 Business relationship: Understand the initiation, selection criteria used, progression, value, and the short‐ and long‐term direction of the business partnership with the supplier.
2 Product or service: Understand your company's need, use, and application of the product or service being purchased.
3 Locations: Obtain a list of all locations that use this product or service and understand how the supplier's product or service is used in each location, particularly regarding similarities and differences and their ensuing impact.
4 Financial: Understand all costs related to the product or service. These include history of price changes, reasons for discounts, payment terms, who negotiates and when, annual volume, and current and future volume usage.
5 Contractual: Understand the contract terms and language, reason for existence or nonexistence, history, changes since signing, and reasons for such changes.
6 Reports: View and understand the various reports produced (by the supplier as well as internally) to track costs and performance.
7 Service: Understand service standards, expectations and measurement used, service process, level of customer satisfaction, and company satisfaction.
8 Supplier Ranking: Ask the end user to rank the supplier according to commitment to the quality of the product or service, value of the partnership, accuracy, creativity, responsiveness, and assistance.
Defining Roles and Responsibilities
The last component to focus on when engaging end users is defining roles and responsibilities. Providing a consistent message to the supply base (both incumbents and alternate suppliers) is critical to ensuring a positive end result. A supplier who hears different things from different members of your team may either disengage from the process or provide a proposal that factors in uncertainty. For this reason, it is essential to assign a project lead. This person (who may be an end user) should be the primary point person that suppliers go to when asking questions, requesting clarification, or providing input. This primary point of contact is also responsible for collecting information and providing your requirements to suppliers throughout a sourcing engagement.
This arrangement does not imply that the rest of the team should be disengaged from the process. By all means, the team should work together to develop the strategy, build requirements, identify alternates, create documents, review proposals, and develop responses to supplier questions. But to ensure consistent messaging, all that information should be provided to the supplier base through a primary point person.
As you move to later phases in the initiative (such as finalist presentations, negotiations, award, and implementation), more members of the team become engaged, at which point it makes sense to have members of your team work directly with members of the supplier's team. But as a starting point, designating a primary point person to provide your requirements to the supplier community helps to avoid a large amount of confusion and miscommunication.
LINE‐ITEM DETAIL AND GETTING THE MOST FROM YOUR SUPPLY BASE
End users can provide you with a good understanding of supplier relationships and history, service levels, and other critical aspects of the requirements of the product or service being purchased. You may have even collected some information you did not have before, including contracts or purchasing agreements, specifications and forecasts, or other reports that end users have available. This information is a necessary part of the analysis process, but the most critical piece is probably still missing—line‐item detail of purchases. Looking at your AP or purchase order (PO) data probably does not help. The descriptions in that data are likely to be as inconsistent as the supplier name and transactions at the invoice level. If you have a good inventory requisition system or have implemented a procure‐to‐pay system, you are starting off in a better position than most, but the system may not include all the data you need beyond unit price, such as freight, terms, and additional charges.
You can collect the data that resides within your organization by pulling invoices and manually entering the information into a spreadsheet.