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The Bottom Line

Engaging with a strategic sourcing partner can be an effective means to improve your manufacturing company’s bottom line without affecting its operations, or perhaps even improving them, because the process allows operational and procurement managers to be better focused on the tactical aspects of running the operation.

Not all sourcing management firms are created equal, however, and like other vendor categories some will be a better fit with your manufacturing company’s culture and objectives than others. We suggest asking the following questions before selecting a strategic sourcing partner. 

This past September, the pulp and paper marketplace experienced its first price increase in nearly four years. Originally announced at $50 per ton, in October suppliers ultimately settled for a hike of $40/ton (roughly 6.5%, from $610 to $650/ton) after weathering some customer pushback. For most users of liner board, this translated to a 6-8% rise in their material costs. For those operating without long-term contracts, the increases were higher.

The negotiation process for expiring manufacturer vendor contracts often poses unique challenges. For example, those that have an existing relationship with the incumbent supplier need that relationship to remain constructive, especially since it will be ongoing once the contract is signed. When negotiating topics like price,   this can prove particularly difficult.

The typical manufacturer has dozens, if not hundreds, of contracts in place with numerous suppliers that support its operations (both direct and in-direct spend categories). As a result, staying on top of the expiration dates for all of those agreements to maintain an effective renewal process can present a significant challenge. At a minimum, doing so is simply best practice, but in other cases, such due diligence may also be a regulatory requirement or a board mandate.

For all procurement executives that oversee vendor relationships, see if this scenario seems familiar: A long-time vendor visits your facility and, unsolicited, offers a contract extension along with attractive incentives; e.g., prebates, rebates, pricing discounts, etc. To date, you’ve enjoyed a good relationship with this partner with no plans to break the contract at expiration, so this provides an opportunity to look like a hero to your facility, bringing in an unexpected windfall to fund other priorities. What could be the downside?