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Supplier Negotiation - The need for Source-to-Pay software

Business | September 17, 2022 | By Kausika Raajan Varatharaajan Supplier Negotiation - The need for Source-to-Pay software

Supplier Negotiation is part and parcel of our daily lives. It is a clear contest where one takes the cup and the other, well, just watches. Think about your last purchase, be it groceries, an automobile, or real-estate, where cost was primary, and everything else took the backseat.

In the world of sourcing and procurement, negotiating with suppliers is not just about cost, but about fostering long-standing strategic relationships with the suppliers. While purchasing groceries, an automobile, or real-estate is a one-time event in most cases, procurement in product manufacturing is a recurring event. And fostering strategic relationships starts with effective supplier negotiations. But, there is no standard for effective supplier negotiation in many industries. Each have their own methods. In the words of Rich Weismann in his article for SupplyChainDive, “Negotiation is an underutilized, yet the most critical business skill that lies dormant within most organizations.” 

In a broader sense, supplier negotiation encompasses supplier performance that includes,

    • Time (lead-time of deliveries) 
    • Cost (competitive pricing) 
    • Quality (reliable and compliant products)
    • Customer support, 
    • Low to naught supply chain risk
    • Mutual trust 
    • Effective communication 
    • Technology capability, and the likes. 

Essentially, it combines interpersonal skills, market knowledge, and data-driven insights. While the first two come with personal experience, the last one, a combination of information and insights, needs data. And the requisite data needs to be available in a single platform, making it easy for the buyers to conduct supplier negotiations. In this blog, we will see why a Source-to-Pay solution is needed for effective supplier negotiation. 

In-Context Supplier Negotiation 

Buyers in product manufacturing companies work with multiple parts based on the commodities they handle. They have to deal with different suppliers at the same time and also deal with multiple parts with the same supplier. And, in most product manufacturing companies a major chunk of the sourcing process is handled manually via emails, spreadsheets, phone calls, and other common platforms. So do you see the problem here? Product manufacturing companies mostly use ERPs for procurement. But, ERPs were built to handle transactional activities. Creating RFPs and RFQs, releasing POs apart from the other ERP functions they perform, such as HR, Finance, Production, etc. But the process in between is lost. 

How are RFQs and POs shared with the suppliers?

Where is the digital thread that shows how we arrived from the purchase requisition to the purchase orders?

How were the negotiations conducted? What were the points discussed? Is it relevant to the part in consideration? 

And when I say negotiations, consider this from the point of view of the buyer. The problem is that after the negotiations, when the buyer organization needs to review them or fetch the details for further action or needs to communicate a change in design, the data is lost, invisible in a sea of emails, reams of paper, and call logs. 

The solution? All negotiations, comments, and discussions related to a single part should have a single, continuous digital thread. No more rummaging through piles of data. 

Single-Screen Quote Comparison

 

The supplier negotiation is carried out primarily based on the supplier quotations received in response to the RFQs. Currently, in many product manufacturing companies, it is difficult to compare multiple quotations side-by-side. The buyers after receiving the quotations from the suppliers have to consolidate all the details in a single spreadsheet for comparison. The process repeats for all the outsourced components. And imagine the time and effort spent on consolidating details from thousands of suppliers. A small mistake here could create a ripple effect downstream.

The need of the hour is Source-to-Pay software where all the quotations from suppliers are available on a single screen. In this way, the buyers eliminate the time and effort spent on gathering and collating data and can use more of their time on strategic matters. 

The Experience Leverage

Supplier Negotiation

Experience plays a huge role in supplier negotiations. An experienced buyer understands the various components of the process:  the way the part is manufactured, the machines used, other processes involved, costing, etc. For example, let’s say a buyer is working on a particular component that has a sequence of machining processes. And let’s say that one of the processes is forging. The machine used is a 15-ton press and it takes 3 presses to get the required form. And the supplier is quoting the cost per press to be $30. But based on the buyer’s experience, she/he knows that the cost cannot be more than $20. So she/he negotiates with the supplier and brings down the cost. 

But what if a buyer is new to an organization? 

And what if an experienced buyer leaves the organization? 

Here is where data is the key. Imagine a situation where the past data of the same part processed using the same machine from a different supplier is available. All in front of the buyers, when and where they need it. 

Time is Money

Buyers must put in a lot of effort before, during, and after the negotiation process. Though this is a given, the area where their efforts are channeled is what matters the most. 

Before the negotiation, buyers have to collate a lot of data, for example, the quotations sent by suppliers, value analysts’ cost estimates, and so on. And to obtain approval from the top management, a post-negotiation report containing the negotiation summary and supplier and buyer comments must be prepared. But, with Source-to-Pay software all the negotiations, and comments are available on a single platform and can be viewed by all the stakeholders, saving precious time for the buyer. 

Also, since all the sourcing and procurement data is available in the Source-to-Pay software, data on the past purchase details for parts of a BOM is available. This ensures that the buyer sources suppliers only for the new parts.    

Shift to Source-to-Pay

A study conducted on over 500 procurement decision-makers reveals that 70% of them believe supplier negotiation is an art. And 80% believe that access to data and insights during discussions significantly influences the outcome. And as discussed earlier, Source-to-Pay software will provide buyers with information and insights to effectively conduct negotiations with suppliers.

Talk to us if you’re looking for such a tool. With Zumen, buyers can benefit from in-context collaboration, continuous digital thread from the start to finish of the sourcing process, secure data sharing, complete data transparency and visibility to all stakeholders, and a holistic approach to supplier relationship management. To know more, write to us at [email protected] or schedule a free demo

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