Managing suppliers professionally

More than ever before, the food industry is currently facing difficulties threatening its existence – whether due to food scandals, natural disasters, or economic crises. It's important to economize to be able to safeguard liquidity and weather a crisis. Every cent saved in purchasing will show directly as profit in the annual profit and loss account. It's therefore important to examine processes and lay down a clear strategy.

Central function of any purchasing department is its supplier management which is also a starting point for cost savings. Yet, there are many stumbling blocks on the way to strategic supplier management; and in the past, the purchasing department has often been treated shabbily. Its only function: Order processing. That's why even today a clearly defined purchasing strategy is still missing which would define objectives, processes and organizational form. Ten points are to be noted well in the development of a supplier management:

1. Purchasing strategy: Between purchasing department and general management, there should be clear agreements on the strategy of the purchasing department which indicates short-, medium-, and long-term monetary and qualitative objectives.

2. Demand structure: Existing structures are to be scrutinized and a three- to four-tier material group structure is to be defined which is adjusted to purchasing interests. Essential basis for a functioning supplier management is the technical EDP integration of the material group structure into the EDP system.

3. Market investigation: Their own continuous observation of current market developments is indispensable for both buyer and supplier so that they will arrive at the same market knowledge. It is extremely important to specifically follow relevant market indices (e.g. EUWID for packaging) to be able to conduct successful negotiations.

4. Supplier relations: Relations to suppliers should be continuously scrutinized. This includes comprehensive supplier research which is also to be carried out supra-regionally and internationally. Alternative offers are to be obtained regularly.

5. Article specifications: Fast access to comprehensive and up-to-date specifications is a basic prerequisite for successful supplier management. A buyer should know the products to be delivered and regularly define their specifications jointly with the specialized department as well as with potential suppliers. Long-term, buyers will thus strengthen their own product know-how and accordingly simplify competitive comparisons.

6. Data basis: Long-term, intensive processing of the data basis pays off. Taking total costs into account, optimum decisions are only possible by means of the detailed data collection of the basic situation, including a record of the ordering and call-off behavior to assess graduated prices.

7. Article price components: Major cost drivers of individual articles can be identified with the most comprehensive analysis of price structures possible. Companies should accordingly ask themselves into which price components the articles to be purchased can be broken down – for instance in material, manufacturing and processing costs. Based on these analyses, specific negotiations can be conducted with suppliers.

8. Supplier know-how: Regular supplier workshops help to identify optimization potentials between supplier and buyer. Unfortunately, such workshops are still the exception. It need not be a contradiction to regularly scrutinize and examine the supplier relationship by observing the competition and, at the same time, to use the supplier know-how intensively. Suppliers like to use the opportunity of being able to implement innovations and show themselves in a favorable light as strategic partners.

9. Communications: To ensure good supplier management, buyers must be excellently networked in their companies and always bring in a basic understanding for the goods to be procured. Negotiations at the front are only successful if the use of new articles can be pushed through internally. That's why purchasing and technical departments must closely collaborate already very early on in a new bidding procedure.

10. Securing conditions: In addition to agreements on prices, negotiations should include – as a standard – agreements on price validity, supply and payment conditions, as well as other marginal conditions. Especially in negotiations of major investments in machinery, spare parts conditions should already be integrated into the price talks. Otherwise, any rebate negotiated in the award talks will quickly evaporate.

Kerkhoff Consulting GmbH – +49 211 6218061-0 – Elisabethstr. 5 – 40217 Dusseldorf - Germany
Kerkhoff Consulting GmbH – +43 153 2272941 – Wallnerstr. 3 – 1010 Vienna - Austria