Tailoring your approach to procurement in the postal industry

To reduce supplier costs most effectively, you need to understand your suppliers and what each provides. You can then group your suppliers and once done can decide which procurement tool is most suited to each to get best results.

Suppliers fall into three broad categories:

Relational suppliers provide products and services on a repeat basis with a degree of trust and collaboration between the parties. The need to ensure business continuity is an important consideration as alternatives are imperfect substitutes. Options in this case include choosing a sole supplier, vehicle manufacturers for example, can offer you a better price if they have certainty of demand via the promise of large orders over extended periods. Alternatively you can outsource. Outsourcing business support services could deliver cost savings whilst at the same time retaining the expertise necessary to be effective. Finally, use framework agreements. A short list of preferred suppliers of engineering services with pre-negotiated prices become the only suppliers invited to tender for individual tasks.

Transactional suppliers provide run-of-the-mill products and services that are readily available from multiple suppliers and are not critical to business continuity. The most likely options to reduce cost are to consolidate needs to get a better price on bulk. For example, concentrate your vehicle maintenance onto a small number of suppliers and get a better price in return. You can also change the specification, for example, downgrade from a canteen to a coffee bar, reducing floor space, staffing and other associated costs. Likewise you can negotiate a price reduction, perhaps re-tender your cleaning services to multiple suppliers to get the benefits of competition.

Value suppliers provide goods and services where the value they bring is more important than the price they charge. In these cases, there are often a limited number of suppliers with specialist skills and experience who provide a highly tailored product or service to the customer. Here, the most likely options to reduce cost are to use ‘intelligent buyers’ to ensure value for money, for example use of in-house lawyers to manage the work of external law firms in supporting a joint venture transaction. It is also possible to use ‘competitive dialogue’ procurement, for bespoke postal machinery for example, requirements may be difficult to define. Competitive dialogue allows you to engage with suppliers and develop a solution in partnership whilst retaining an element of competition.
 
It may be that, as you categorise for your own suppliers, you feel there are more than three groups. For every rule there is an exception but too many groups will make management difficult, so be tough over these decisions.  Only once you have you clearly understood your suppliers can you start to look at what you are buying and decide on the best tactics for negotiating a more cost effective supply.