Diversity is a strategy that works in any discipline to reduce risk and maximize returns. Stock market indexes consistently outperform fund managers just as in nature, where diverse populations and breeds of animals or plants are more resistant to illness and less likely to be afflicted by disease.
Balance is the key to life; business too.
It can be easy to fall into inefficient buying patterns when working with a particular supplier for a long period of time.
It’s tempting to always go for the lowest price when sourcing goods and services, not taking into account other costs of doing business with the “lowest cost” provider.
Suppliers tend to become less competitive over time. One of the best ways to reduce this effect is to run a Supplier Diversity Campaign. This will force suppliers to compete over your business based on the actual cost of doing business with each individual vendor.
This guide can turn moderate business people into procurement pros or help inspire veteran buyers to increase their supply chain efficiency.
How to Run a Supplier Diversity Campaign
Organize Your Vendors
The first thing you want to do is organize all of your vendors into groups of similar materials/components/services or expenditures types. It’s OK to have the same vendor in multiple categories.
After that, you should order the various categories by percentage of budget from highest budgeted item to least. This will help you see where it is best to focus your efforts to get the highest return.
Finally, tally up all the vendor’s total dollar amount from all categories over the last 365 days or previous calendar year if that is a better representation of your expenditures.
Doing this, you can see what percentage of your business goes to individual vendors, total dollar amount, and other insights depending on the information fields you have.
Contact Vendors of Each Supplier Category
Draft a letter template that you can customize to each vendor discussing your past and current business with them, highlighting the good points and including any issues you may have had in previous transactions.
It is always best to have a future order such as a contract renewal or new project that needs to be quoted out, perhaps to more accurately reflect “Your Company’s place in the market” or a multitude of other, far more compelling reasons.
It helps when asking for better terms that you explain where the savings will go, and how much you appreciate their service. Give them reasons to offer you a better deal or form a stronger partnership.
The point is to demonstrate how substantial your current business is if it is indeed substantial, or how much more substantial it could be with the right pricing.
You would then close your letter requesting that they submit a competitive bid or contact you with any questions and tell the how to do so.
If you have a designated representative with the vendor, send it to them.
Request Quotes and Purchase from New Vendors
If you want to have a more robust supply chain, I urge you to award some of your business to new vendors.
To accomplish this, it is best to price out some of you lower level work separately from your current vendors to a group of new vendors. You can find these vendors with a couple internet searches or utilizing that vendor file cold calling salespeople hear so much about. I know it exists because I’ve been awarded several times in my sales career from getting into that new vendor file.
When working with any new person or company, there is always some sort of on boarding process. Make it as simple as possible on your end. This will make it easier for you to evaluate new vendors without too much complexity.
The goal of this is not to get work done the in the least expensive manner – this process takes time and effort, and you want quality work as well. What you are doing is creating options for the fulfillment of services you consistently need.
If you only have two vendors for a component your company needs to function, you end up with a duopoly of your needs. You’ll end up paying a premium.
Protect against that by building up the competitors of your vendors and training them to work with you.
You’ll get a higher rate of return by having more control over smaller vendors. Your business will build up their capabilities specific to your needs.
Reward Top Performers
The best way to reward top performing vendors is by giving them more of your business.
Take your procurement category budget and divide it into three sections – Top Vendor, 2nd Vendor, and New/Small Vendors. The top vendor gets 40% of your business, 2nd gets 30%, while your smaller vendors get the last 30%.
This is just a guide and will vary based on the industry category and size of your business. Larger companies should break their supply chain into smaller sections and more of them.
Unless you are just getting started out, you should never have just one vendor for any category. I bank with three different companies in my business/personal affairs – a community bank, a regional bank and a nationwide bank.
As with anything in life, consistency drives results.
You should by no means harass or nickel and dime your vendors. Any established and respected business person knows to treat people fairly.
This is about creating community and competition in the business environment. You’re getting your name and organization’s work out there too.
If you don’t already have several “New Vendor” files for your main procurement needs, make them. Put all the business cards and brochures you get at networking events or cold calls to your office.
Let your marketing department know about these files, along with your new command of your existing vendor base. It is an excellent tool in creating strategic partnerships.