Large businesses were early adopters of procurement services but it is still a foreign term to many smaller businesses. IBM even formed a business unit which is heavily utilized by large businesses around the world for indirect procurement. While IBM deals with a wide range of “back office” procurement tasks, a more accurate term to describe what LPS does was coined by the U.K. procurement consulting firm GEP who in their July 26, 2016 post titled “Developing a Sourcing Strategy for Lab Consumables” uses this description:
“...organizations have an opportunity for cost savings in shifting from a preferred supplier model to an aggregator model. In an aggregator model, a preferred vendor acts as an intermediary or channel partner between the buyer and the local suppliers of products they don’t supply.”
This blog post discusses how smaller companies can utilize procurement services to save money and make better utilization of their available resources.
Two manufacturing businesses will be compared. Company A buys lab supplies in the traditional way. Company B buys lab supplies with the help of a Procurement Services organization.
In this example, we will explore how the two companies do two routine procurement tasks:
This company's purchasing department places all the orders. The bench techs tell the lab manager what they need, and the lab manager submits a requisition to Purchasing. Purchasing has procured all but one of these items before and the items are set up in their purchasing system. The last item was specified to come from a global distributor “F” by the lab. However most of the company’s business is done through another global distributor “A”. “F” does not have a rep calling on them.
Purchasing does not place orders on the vendor’s web sites. Their system faxes an order to the vendor. For items already in the system, this works well. But for new items, a whole new more complex workflow is required:
The lab manager does an online investigation of options. He chooses the one he likes and contacts the company to find out what options he will need he works with the technical support department and they develop a quote.
This quote is received and sent to purchasing. Purchasing then prepares a formal RFQ document and sends this out to Distributor “A” and “F” as well as any other vendor selling the unit that can be found online.
Bids are returned, compiled by purchasing, and sent to the lab manager for evaluation. If the lab manager does not select the low bidder, then a justification letter must be written. The item goes to a capital purchase committee where it is approved and sent back to procurement to be ordered.
This company utilizes a channel partner / aggregator (LPS) so purchasing resources can be focused entirely on buying raw materials. The responsibility for ordering lab supplies has been delegated to the lab manager.
The lab manager contacts LPS to discusses their equipment needs and the application. He has been online and has seen a preferred unit. He tells LPS that he would like to look at cost saving alternatives.
LPS returns with the various options and approximate costs. The lab manager specifies which unit(s) he would like to see consider for pricing and availability. LPS negotiates pricing and terms with the vendors and provides a final quote. The lab manager shows the various options offered and once he has decided on the best, obtains approval from management to purchase then places the order on the LPS website just like any other item.
Today we rely on Uber to bring us our meals, Kroger to pull our groceries off the shelf, and our accountants to do our bookkeeping. Concierge services at hotels make our reservations! Larger companies have for many years placed an emphasis on reducing the cost of acquisition by using experts.
Does the scenario describing Company A sound similar to your company? If so, we invite you to see how easy it would be for your company to be more like Company B. It’s not just about the reduced stress levels; you will save a ton of money too!