Gaining Leverage in NegotiationsBy Baselinemag | Posted 2006-01-14 Print
Spend management and analysis software can show where the money's going, and provides the electronic tools to bargain with suppliers.
According to Hutchinson, Owens Corning's buyers then use that analysis when they're negotiating with suppliers. That helps the company figure out where it can consolidate purchases, and push for a better discount if multiple units are buying from the same supplier. Owens Corning has also been able to use the Emptoris tool to run "vendor familying" analysis, which shows where buying is spread among different subsidiaries of the same larger corporation.
"Instead of dealing with individual companies we spend less than a million with," says Hutchinson, "we can take $10 million to the parent company and say, 'What can you do for us?'"
Procurement professionals caution, though, that spend management and analysis software is not a replacement for human intelligence. "A spend analysis tool isn't some sort of crystal ball," says Khalid Baig, senior manager of strategy and planning in Toshiba's U.S. purchasing office. Software can reveal where multiple suppliers are used for the same product or service, he explains, but sometimes there are good reasons spending isn't consolidated with a single supplier. For example, one advertising agency may be especially valued for creating TV spots featuring consumer electronics.
And there are limits to online auctions, which pit suppliers against each other for business in a real-time, electronic forum.
Jon Finseth, director of sourcing and procurement at phone and Internet provider TDS Telecom, says the second time a product category is auctioned, suppliers have already squeezed their margins. "Sometimes the guys who end up winning the auction aren't happy they won," he says. "Then, the service suffers." His advice: Don't use auctions everywhere. Finseth finds they're most effective for generic categories, such as travel services and office supplies.
Seasoned corporate buyers give as much weightor moreto factors other than price, such as service and quality. "We very rarely take the low price," says R. Gregg Brandyberry, vice president for global systems and operations for GlaxoSmithKline, which uses Emptoris' procurement tools to rate 14,000 suppliers worldwide.
That said, Brandyberry is a true believer in the power of electronic procurement technologies. "This dynamic of suppliers competing really drives a market price," he says. "And in the long run, we think it's going to bring us the very best suppliers, because only the very best will be successful."
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