Sourcing and procurement play an important role in companies of all sizes, and can have a significant impact (positive or negative) on a company’s competitiveness and its success. Any C-Suite executive responsible for sourcing and procurement should be able to answer these three key strategic questions:
- Is my procurement team delivering appropriate pricing for my production materials in an effective and efficient way?
- Has my team assured security of supply for all production materials?
- Are my production materials compliant with regulatory and product requirements?
These seemingly simply questions -with often complex answers – provide important measures of business health as it relates to supply chain. Even if you are able to get some of this information, would you feel confident that the answers you get would be adequate?
Some of the answers you may be able to gather easily will usually lead you to more questions or expose unnecessary inefficiencies. For example, “How many single source parts do I have in my products where alternatives exist?” quantifies aspects of security of supply risk and illustrates where you have given up negotiating leverage.
Another question along the lines of, “How many no fault found product returns do we get?” would give you some idea of how your materials comply with product design requirements but doesn’t provide the context you might need to assess the health of your supply chain. What would happen to your product if you used the wrong part because of a part number spelling error that lowered a component’s voltage rating or loosened its tolerance.
Most questions are harder to answer and need what we call a “trust but verify” approach. You can trust that the information you’re getting internally is correct, but you should absolutely verify that what you’re being told is true with hard data and analysis. That’s the tough part.
When asking your team about the appropriateness of your pricing, here are some possible answers you may see, and the follow-up questions you will want to ask:
“Trust us, we are professionals and know our pricing.”
• Prove it! Show the data you’re using to determine that we’re getting the best pricing we can.
“Our suppliers tell us we are getting good pricing.”
• You don’t pay the sticker price at a car dealership. How much should you discount these prices and how do you know?
“We achieved 6% cost reduction in our last negotiation.”
• Fantastic news, but how does that compare to the market? What other factors may have caused that reduction?
“We use competitive bidding.”
• Good! But the supplier’s sales team has probably calibrated you to a quote acceptance threshold to make sure your discount isn’t too drastic.
“We benchmark using the internet.”
• Against what data? Who is providing it and what are their motives?
“We use expensive consultants who tell us.”
• That sounds fancy, but where do they get their pricing knowledge? Are they experts in your area? Can they give you market base pricing on all components.
“We benchmark against real market prices.”
• Yes! That’s the verification needed!
Lytica’s SupplyLens™ Pro platform provides these answers. With over a quarter trillion dollars of real market pricing information and our advanced AI analysis, we can tell you how your pricing stacks up and what you should be paying when they don’t. But this is only part of the equation.
The next thing you should ask yourself: Is your team effective and efficient? When your team goes to renegotiate with market-based price targets, some will have better success than others — this is only natural. But wouldn’t it be useful to have a metric to allow comparison between your cohorts (teams, factories, divisions, geographies), like a school’s letter grade system? The SupplyLens™ Pro platform has this normalization capability as well as enabling a statistical analysis of your procurement processes similar to the manufacturing industry’s use of Statistical Process Control (SPC)to improve its quality and performance. Lytica’s data data shows us which companies and sectors are performing the best. What commodities, suppliers ,structures and processes define these as top performers?
You may never get perfect answers to all 3 questions posed in the opening paragraph, but Lytica’s SupplyLens™ Pro platform plugins will help arm you and your teams with the most important supply chain data and analysis for your business.
SupplyLens™ Pro is enabled by the world’s largest independent database with millions of actual prices paid by real customers. Trusted by customers globally and having analyzed over $250B USD in electronic component spend, clients benefit from the plugins below with true market insights to drive cost reduction and mitigate supply chain risk.
The SupplyLens™ platform was built with one primary goal: arm our customers with the data and analysis they need to build better and stronger supply chains. If you’d like to learn how you can help your company or your client realize unprecedented levels of cost reduction and risk intelligence, schedule a demo of the SupplyLens™ Pro with the Lytica team today.