Sourcing Tips

Put Contingency Plans in Place

Having plans in place to respond to supply chain disruptions can provide significant competitive advantage. Contingency plans should address both localized and global shortages of parts and materials. You should always test your plans to ensure they will be effective.

Use Demand Management Techniques

One of the best ways to keep office supplies in check is to organize for demand management activities. Here you evaluate the number of office supply inventory stocking points, the use of standard products, and the need for a specific type of products to be used by office staff.

Perform Cost Analysis on Sole Source Purchases

For all sole source purchases, ask the supplier to break out all costs of the product or service, including labor, overhead, materials, G&A, and profit. If they refuse, at least get the gross margin for the purchase. In this way, you can evaluate the basis of prices and develop effective negotiation strategies.

Always conduct price analysis for purchases above $3,000

For all purchases above $3,000, perform a price analysis. Use the independent estimate provided by the user, prices submitted by other suppliers, historical purchase prices, and other pricing as available on the internet to ensure that the prices paid are fair and reasonable.

Insist on an Independent Estimate

Ask the user when he/she is completing the requisition to develop an estimate of the cost of the future, taking into consideration knowledge of the market, previous purchases, specific cost inputs to the purchase, and potential cost drivers. This will provide a baseline against which you can compare the submitted proposals to ensure that the supply base adequately understood the requirements.

Don’t easily say “yes” to proposed price increases

It is a known fact that those buyers that don’t agree with the initial request for price increases have a better chance of rescinding any planned increase. In any event, ensure that the supplier is properly following any contract terms, and is only asking for increases in costs beyond their control. Also, request that the supplier demonstrate the build-up of the price increase based on the component of cost that was affected plus the requested profit.