Is negotiating directly with the supplier always the best procurement strategy? When you’re considering how to best manage your contracts, you have two goals. First, you want to work with the best vendors. Second, you want to get the deepest discount possible. The million dollar question is, do you want to negotiate with the provider, or partner with someone who has already done the work?
While many believe going direct is the only way to get the lowest price, it’s not always the case. The article and infographic below explain how to decide which is right for you. So that you can make sure you're never spending a penny more than you need to.
Procurement Strategy: What’s the Best Supplier Relationship Management Approach?
Everyone wants to know what the best supplier relationship approach is. The best “bang for the buck” so to speak. But the truth is, it depends… on several factors.
Factor one: is your organization set on using a particular supplier? If so, you may not be able to leverage the contracts of a 3rd party like a Group Purchasing Organization (GPO).
Because each GPO is different and has a unique portfolio of pre-negotiated contracts, they may not offer an agreement from your favorite vendor. However, the best GPOs will have partnerships with the industry’s top providers, so that’s an excellent initial qualifier.
If you’re looking for the best overall savings in a certain category, not necessarily from a specific supplier, GPOs can be the perfect solution.
Factor two: how much leverage does your organization have? If you don’t have enough buying power, aka category volume or spend, many top suppliers won’t even consider negotiating with you; especially if there’s not already an existing relationship in place.
Luckily, when you join a GPO, you join a group of buyers, so your buying power increases regardless of your category spend. Meaning you don’t have to buy in high volume to get the best bulk discounts.
Factor three: how much time do you want to put in? If you’re planning on purchasing directly, you need to think about the time and effort required. Does your procurement team have the bandwidth to do another evaluation? To negotiate yet another contract, and manage one more vendor?
The great convenience of buying through a GPO is that it’s highly efficient. And you won’t waste time negotiating only to get a subpar discount. You won’t need to issue an RFP since the agreements are pre-negotiated. Best of all, you can get started very quickly with your new supplier. Plus, you’ll get extra monitoring through the GPO, ensuring your new vendor keeps up their end of the bargain.
Remember, leveraging a 3rd party contract provider doesn’t mean you can’t negotiate the agreement yourself, it simply means you have better things to do.
Conclusion: Does Buying Directly From Suppliers Get the Best Price?
Bottom line, it’s all about how much your organization spends. If you’re a Fortune 500 company that has massive volume and a robust procurement team, going direct will likely get you a better price; especially if you have several category experts on staff.
But for the majority of businesses, partnering with a GPO is a great way to increase your buying power. Not to mention, get deeper discounts, and improve your supplier accountability.
Direct purchasing pro: total control, no middle man. Possibly more agreement customization and flexibility.
Direct purchasing con: it’s not always an option, and when it is, it requires a whole lot more time and effort. The beauty of working with a contract provider like a GPO is you’ll save time, get better overall discounts, and gain an added layer of vendor transparency.
The good news is, it doesn’t have to be either/or. A good GPO is never exclusive. Which means you can negotiate key contracts directly and get pre-negotiated agreements for lower volume, or lower priority categories.
When in doubt, let the savings do the talking. You may think you’re getting the best category discount possible, but you never know until you ask. (Request a free cost reduction consultation here.)
When considering your supplier relationship management, think about your vendor criteria. Are you set on a specific provider? Does overall category savings matter more? How high is your volume? How much capacity does your team have? The answers to these critical questions should dictate your approach.