Seasoned sourcing pros know that there is often much more to awarding a contract than price. And yet, they often hear from business stakeholders that competitive sourcing is not the right strategy for their particular category, saying “this category is far too specialized and there are too many non-price factors that must be considered in awarding the final contract. Sourcing just does not make sense here.” The reality is the exact opposite. A mature sourcing organization should be ready and able to incorporate non-price decision factors into the final evaluation and award of a supplier contract. They should also be able to weight price and non-price factors into a single evaluation. While this could be difficult in an offline sourcing process, the advances in eSourcing technologies over the past five years have made it much easier to incorporate varied and complex award criteria into a streamlined and automated sourcing process.
Those business stakeholders who offer excuses like the ones above are playing into the hands of the savvy and sophisticated sourcing teams who are prepared to run sourcing projects that incorporate non-price factors into the decision making process. After all, sourcing is not about identifying the lowest price; sourcing is about identifying the greatest value. Thus, today’s article, the second of two articles (click here for the first), is a discussion of three more frequently used non-price attributes and how their use can help sourcing teams find the best suppliers.
One: Supplier Performance
Supplier performance, like quality, is something that can be quantifiable and highly subjective at the same time. Like quality, the components of performance are highly dependent on the situation, the supplier, and the good or service provided. And, of course, like quality, there are thousands of sources for information on supplier performance and how it should be graded and then incorporated into future supplier negotiations. Sourcing teams can certainly use supplier performance evaluations to make smarter sourcing decisions, but they can also use this process to improve the quality of future supplier contracts (e.g., “What service-level agreements should be included in a contract? What were the most important factors used in evaluating supplier performance and are they reflected in the contract?”), and improve supplier communication and relationships (e.g., “What did we just learn that we can share during the sourcing process to better define our requirements? How can we build upon what worked in the past and improve upon what did not?”).
Two: Production and Delivery Capabilities
While many supplier capabilities are embedded within the quality and price of the specific item or service, there may be other factors related to supplier production (and delivery) that can or should be considered when managing a sourcing project. These factors may or may not be directly related to the contract currently being negotiated. Here are a few capabilities to consider:
- Value-added or complementary products and services
- Capacity
- Production process (and technologies used)
- Operational and technical capabilities
- Geographical reach
Three: Supplier Ownership and Leadership
A more complex aspect of understanding who a supplier is understanding its ownership and ownership structure. Leadership often sets the tone or culture of an organization, but the history and ownership of a company can be just as important. Consider the following comparisons as examples:
- A successful business unit within a large, cash-generating conglomerate is more likely to survive the next downturn with little business continuity risk than a privately-held mid-sized operation.
- The European company owned by two seventy-year old brothers with no succession plan and no children is less likely to be able to support the new product line that launches in 2018 than the publicly-traded company whose new forty-year old CEO was a recent shining star at another industry leading firm.
- Likewise, working with the hands-on owner of a boutique advisory firm who guarantees customer satisfaction can be a very different proposition than dealing with the hard-charging, big-firm consulting partner who can only guarantee a high number of billable hours.
Diversity matters, too (and can matter in a big way), for doing business with leadership from different walks of life and even different genders can foster new approaches to common or established business challenges, and drive innovation and positive change. To their credit, many large enterprises have supplier diversity programs that promote and/or mandate that some business be done with minority-owned, service-disabled, veteran-owned, and/or women-owned businesses.
Final Thoughts
As we are oft to say, it’s not always about the lowest price – it’s about the best or greatest value. This applies to sourcing decisions and relationships as it does to what’s on your grocery list. Beyond which suppliers can give you the lowest price on a service, part, or commodity are the suppliers that are an overall better value. Look for them in terms of how well they have performed in the past (with you or other shops – get references and ask around) Also, consider what kind of value they add to the deal – what can they throw in or what is special about them compared to others? Finally, take a look at company leadership – do they reflect your values? Can they support your business objectives? Will they make good decisions for you? Will they be change agents or value drivers?
We could probably go on, but you get the point. Bottom line: don’t source on lowest price – source on greatest value.
RELATED ARTICLES
NEW WEBINAR – The State of Procurement 2018
Three Non-Price Attributes to Source Better
Seven Keys to Better Sourcing and Supplier Management, Part Two: Early Engagement
Seven Keys to Better Sourcing and Supplier Management, Part One: Know Your Spend
