SUPPLIER RATIONALIZATION: PART 2 - IS FAILURE YOUR PLAN?
Lead Consultant
It’s not often you have a chance to quote Benjamin Franklin, but this is one of those times when his centuries-old quote hits the mark: “If you don’t have a plan, you plan to fail.”
We all know there just is no substitute for a good plan built on a well-developed strategy. And while organizations are great at turning that strategy into a plan to develop growth in new markets, increase sales, and improve operational efficiency, few think about how their strategy impacts their supply base.
In our supplier rationalization article last week, From Many to Mighty: Consolidating Suppliers Without Compromising Value, we stressed the importance of streamlining your supply base to improve your leverage. We also recommended cleaning up your supplier portfolio by reducing duplicative solutions and services. All this puts your organization on solid footing to review where you can build strength with suppliers through supplier compression, by consolidating your purchases with a smaller set of suppliers.
But doesn’t this leave you vulnerable to a limited number of go-forward options? The simple answer is that it can. Especially if you don’t regularly conduct a segmented strategic review of your spend portfolio by category (e.g. consulting, technology, HR, facilities, etc.).
It may also put you at a disadvantage if you have not taken into consideration a supplier’s ability to scale properly. What do we mean by ‘scale’ in this instance? Let’s look at how that can play out with your technology solutions and steps you may consider maximizing your results.
Perform a strategic review
Let’s take a look at how this would play out in a segment of your technology spend category.
The focus of a strategic review is to look at your technology applications that provide the highest business fit. Which systems are critical to your organization’s mission? Most often, these are also your largest spend areas. Ranking them by spend might be easiest for your initial review.
In focusing on these applications, you will evaluate how well the suppliers and solutions are performing to support you now and going forward. Let’s repeat that – and going forward! Just because you had the perfect solution five years ago, does not mean it can support a changing strategic direction or operational focus. Just because you have more than one supplier for a solution does not mean that is the wrong path forward.
A quick aside: Learning to plan from our technology friends
A good sourcing and procurement professional lives in a ‘gray’ world where the facts matter and dictate the path forward. Technology folks will understand this concept with a simple concept – Disaster Recovery. How many organizations opt to forego the idea of a hot site due to the expense of maintenance, while many others would never be caught without one? As in all cases, the right decision depends on many factors. The most important thing you can do is simply consider where your organization fits and proceed (prepare) to take action.
Back to our strategic review and plan
Once you have completed your evaluation of how well your suppliers are meeting your needs (present and future), you then need to build a plan to ensure you continue to have maximum value from your investment with these suppliers.
Having strong relationships with key suppliers does not mean you should encourage complacency by not periodically putting applications out for bid. The dynamics of technology generally dictate that you review possible alternatives regularly. In some instances, this is every year, in others, this may be every three years, or possibly more. The essence of this approach is to develop a plan for when you will review your key suppliers and execute on that plan.
Knowing when to “lift and shift”
Supplier relationships are built over years. We get it. But, as is the case with friends, they don’t always move in the direction you need to go. There are times when your technology needs require you to “lift and shift”. Here are some questions that might signal how ready you are to move to a different supplier’s solution (or when you may need more than one supplier for a similar function):
Is this a mission-critical application? Should I have a backup in case the primary supplier fails?
How long would it take to transition to a different solution if necessary? Can my backup scale up to meet the new/immediate demands?
When was the last time we reviewed potential alternatives? Is my alternative supplier now showing signs that they should be given consideration to being primary?
Are there known comparable solutions? If so, are we currently buying from this supplier?
Is this a highly unique solution or a highly customized solution?
What amount of leverage do we have with this supplier? This is indicated not only by your level of spending but the depth of the supplier’s portfolio that you are using.
When was the last time this solution was taken out for bid?
Some Clients are wary of signaling intent to suppliers by putting an application out for bid. We have found that, when done thoughtfully and consistently, it can only improve the value you receive from your supply base and often serves to strengthen your relationship. (They won’t take your business for granted.)
Bidding out your business certainly can help you gain pricing leverage, but just as importantly, it can provide you with innovations that can improve your operations. It can introduce you to alternatives that you had not previously considered. Wouldn’t you want to know about a new front-facing solution that could improve your customer responsiveness or a back-end solution that could increase operational efficiency?
By asking the questions posed above, you can build out an action plan to prepare your organization well in advance of contract renewals and provide you with options! No more, “I guess we’ll just renew again and think about it next year.”
Our buddy Ben (Franklin) said it best, “If you don’t have a plan, you plan to fail.” Seprio’s Supplier Governance Model is built on thoughtful, strategic planning. If you’d like some help with that, all you need to do is reach out. We’ll help you plan.
Please join us next week as the 2025 Seprio Summer Series explores supplier/client relationships and that there are some things that AI cannot replace.
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