Guest post by Jennifer Ulrich, Project Manager of Source One Management Services (learn more about Jennifer at the end of this post)
In a recovering economy, businesses can’t afford to lose labor resources, but need to continue to trim their budgets. There is a goldmine of cost savings potential hidden in the very things companies buy to run their business. One of the key steps to purchasing such items as office supplies, maintenance equipment, direct materials, or janitorial services, is market intelligence. It’s amazing how, as consumers, we are diligent in researching and evaluating personal purchases such as vehicles, vacuum cleaners, and landscaping services, yet companies don’t afford the time nor resources to properly gather intelligence on their purchases. Here are a few steps that can produce hard-dollar savings to help keep your business running lean and mean.
Types of Market Intelligence
Types of marketing intelligence vary based on the products and services you are looking to buy.
Global Market Conditions
Regardless of whether the targeted product or service is sold domestically, your company needs to have an understanding of the global landscape. You should be following the oil market if shipping costs are a part of your received inventory costs. Supply risk should be constantly evaluated as well as government regulations, cultural shifts, and potential natural disasters that can disrupt your supply.
Benchmarking Data
By analyzing your business processes, costs, and performance, you can compare those metrics against other industries’ and competitors’ best practices. Discover if a competitor is using a less expensive manufacturing method, penetrating new markets, or selling at lower price points.
Understanding Market Pressures
Your market intelligence should include an understanding of what is happening in your consumers’ economies as well as your suppliers’ locations. This knowledge can help you react to conditions and take advantage of potential cost savings opportunities. Is your supplier located in a region that is experiencing an increase in unemployment? Are they crunched for cash? This information is valuable in negotiating lower pricing and better payment terms.
Steps to Success
Time and Timing
Gathering the right resources, including people and technology, and allowing the time to properly gather information can give you the upper hand. Contract renewals can sneak up on you, so be sure to set reminders to allow you time to research and evaluate before you are forced into signing a continuation agreement.
While time and resources are valuable, assessing whether it is the right time to go to market is invaluable. If you are amidst a new product launch, be sure not to gather data too early or it will be stale by the time you need to purchase your materials. Are you ready to switch suppliers, technologies, or services? If you aren’t ready for change, the time you spend on aggregating intelligence will be a waste. Sometimes it makes sense to extend a contract rather than sourcing at an inopportune time.
Gathering a Team
Critical members of your research team should include individuals with technical, analytical, and communication skills. They should have knowledge about the product or service you are looking to buy as well as how it will be used internally. By gathering individuals with blended skill-sets, you will be better able to collect comprehensive data and valuable insight into what you are buying and how much you can save.
Creating Metrics
Metrics vary greatly depending on the product or service you plan to buy as well as the nature of your business. “Hard” metrics or quantifiable metrics include hard-dollar savings projections, payment terms, lead-time, and quality improvements. Qualitative metrics or “soft” metrics include exclusive distributor rights, quality improvements (as they impact customer perceptions), supplier relationships, and process improvements.
The major questions you want answered include: When was the last time this product was sourced? How old is my current data? How static is my data? What meets my requirements?
Identifying Suppliers
When researching products and services, you will want to identify suppliers that can meet your requirements for those items. This is an important step, even if you are happy with your current supplier. This intelligence may offer you an alternative solution or validate your commitment to your current supplier.
When evaluating potential suppliers, pay attention to how quickly they respond to your questions. If they are too quick, they may be offering you a standardized answer that won’t sufficiently address your needs. If they take too long, they may not be as familiar with the industry as they claim. Does the supplier provide satisfactory answers to your questions? If not, rephrase questions until you receive the appropriate response. Ideally, a supplier should provide more information than you need or more than you requested.
Recognizing Alternative Solutions
You may be looking to buy a brand new product or service that doesn’t have historical data or a product that is confidential in nature. An excellent solution is to identify adjacent technologies that are available in a different industry with similar manufacturing methods. For example, the aviation industry can look to the automotive industry for inspiration and insight.
Examining the Components
To uncover even more savings opportunities, it is worthwhile to examine the components of the products and services you buy to identify trends in the market. This information can also help determine the timing of a project and provide you leverage with suppliers when you ask them to justify their pricing. Components include raw materials, shipping costs, labor and equipment, etc. Using commodity indices, you can properly evaluate these categories.
For example, the components of a corrugated box include material, labor, shipping costs, profit margin, and customization charges such as printing. Indices for pulp and fuel will give you significant insight into to costs of materials and shipping for this product.
As your market intelligence of the products and services you need to run your business increases, so will the amount of dollars you save. Your research will be complete once you have enough information to understand cost models and bolster your negotiating power. With your new insight into the market, you can properly prepare for a growing market by locking in products that your competitors are trying to buy as well as prepare for a shrinking market where you will need to have stable and diverse suppliers to continue your day-to-day business.
Jennifer Ulrich is a Project Manager for Source One Management Services, LLC, a procurement service provider, where she collaborates with her team to help companies streamline operations, reduce costs, and create value. Jennifer is noted as a contributing author in the book, “Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing,” published in 2011, and also contributes regularly to the strategic sourcing blog, StrategicSourceror.com.
