Purchasing is imperative to organizations of all sizes. While at HPN Select our procurement expertise lies in the multi-family housing industry, these tips can be helpful for a wide variety of organizations. Below are some of the most common sourcing mistakes and tips for adjusting your procurement process in the future.
Do you have a large renovation in the pipeline? It is never too early to start planning for sourcing the product and labor needed to complete your project on time and within budget. Especially in the COVID-19 environment we are in today, locking in the pieces necessary to complete the job are of utmost importance. Managing RFPs and awarding suppliers can take longer than expected, plus, the awarded supplier may need some time to ramp up production and/or labor. Giving suppliers sufficient lead-time is always a good idea when planning for larger, time-sensitive projects.
Solo Decision Making
While the job of a procurement professional is to properly vet and source new or existing suppliers, not involving all of the proper internal and external stakeholders can cause problems down the line. Is the executive team on board? If not, all of your hard work may be for nothing. Is your end user happy with your decision? If not, you may get poor program compliance in return.
A “stakeholder” could also mean different departments within the organization, like finance or marketing. Are the terms and conditions of the agreement in line with the finance department’s standards? Is the selected supplier and their mission cohesive with your brand? These are all important questions to keep in mind throughout the sourcing process. It’s imperative that all relevant stakeholders are on board with both the process and the final decision to ensure a smooth supplier program rollout.
Overstating Leverage in the Marketplace
Understanding your purchasing power is crucial when taking a new sourcing category out to bid. Understand your leverage in the marketplace and remain confident in your organization’s worth when negotiating with suppliers. Although buyers often overstate their purchasing power and demand too much from prospective suppliers, the same principal goes with understating leverage. If you’re sourcing a new category or unsure of the current marketplace dynamics, issuing an RFI (Request for Information) to prospects can be a good place to start.
Poor Relationship Management with Suppliers
The symbiotic relationship between an organization and its suppliers is often misunderstood. While the purchaser may hold much of the power in the relationship, the supplier holds more cards than you might think. Some questions to ask yourself are “How many alternative suppliers are there for this particular good or service?” and “How would it affect your organization if your current supplier were to jump ship?”. If the answers are few to none and cause organizational distress respectively, it may be important to your organization to make more of an effort to maintain a positive purchaser to supplier relationship.
The relationship should result in a win-win situation, with both parties helping each other in different ways. The supplier should continue to innovate and provide the goods and services needed for your organization to thrive most effectively, while the purchaser should uphold promises or agreements made throughout the partnership. Both parties should continually provide each other with information needed to best serve the other. For example, accurate and timely spend data should be shared fluidly.
Treating a supplier/purchaser relationship like a partnership and not just a business deal can make all the difference in the longevity of a mutually beneficial relationship.
Failing to Negotiate
Negotiations can be a tricky, but extremely important step in the supplier selection process. Be prepared and confident in both your requests and items that the supplier may ask for in return. Identify your “must-haves” with your internal stakeholders, along with some “like to have” items, prior to negotiations. The goal is to end negotiations with a win-win scenario for both the purchaser and the supplier to start the partnership in a positive light.
The supplier likely suspects the purchaser to negotiate and prepare similarly on their end as well, so be sure to not leave anything on the table!
Absence of Training and Program Usage Policies
The months of research, soliciting bids to your RFP, and negotiating terms and conditions with the awarded supplier are complete. Now, your field staff refuse to utilize the new program. What could have gone wrong?
People inherently react poorly to change, so easing any pain throughout the organization when moving to a new supplier is crucial. Providing field staff with clear and concise training and step-by-step guides for future purchases are beneficial to future program compliance. Enforcing procurement policies throughout different levels of the organization encourage company-wide adherence as well.
Lack of Standardization and Compliance
When an organization lacks supplier compliance, they are losing purchasing power, time, and money. A supplier may be less likely to work with you in the future if spend level promises are not being met. Processing extra POs and onboarding additional suppliers indirectly cost organizations both time and money. Plus, the rogue purchaser may be paying too much on the good or service in question compared to your pre-negotiated rates with the preferred supplier.
Continue to check with your accounting team to ensure compliance and supplier standardization. Understand why individuals may be practicing rogue purchasing – whether they are unaware of the program, don’t like the new supplier, are having delivery problems, or simply like the gift basket from a local competitor – and work with your preferred supplier to meet their needs.
HPN Select is a group purchasing organization that specializes in assisting multi-family housing developer and operators.