How to Foster Constructive Competition for Your Business

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To increase savings, increase competition. Sounds counterintuitive, right? Not when procurement is running the show. For businesses wanting to drive bottom-line impact through increased savings, fostering constructive competition within the vendor base is key.

To increase savings, increase competition. Sounds counterintuitive, right? Not when procurement is running the show. For businesses wanting to drive bottom-line impact through increased savings, fostering constructive competition within the vendor base is key.

Procurement has always driven savings for the enterprise, but now it’s holding its own as a critical and strategic business function. A recent research report from Harvard Business Review (HBR), in partnership with Scout RFP, drives this point home, noting that “… sourcing and procurement leaders point out that any cost savings realized through sourcing improvement drop directly to [the] bottom line, which, in turn, can have a substantial impact on profitability.” To harness the power of procurement, enterprises must also prioritize more beneficial, strategy-driven relationships with vendors.

So, how can businesses go about fostering constructive competition to ramp up their sourcing decision strategy and increase the impact from their vendor base? Begin with two key approaches:

Approach No. 1: When it comes to your selection process, shift into neutral.

Neutrality is key when it comes to creating constructive competition that works in your business’s favor. Because of each department or employee’s individual role in vendor relationships, it is natural to develop favoritism for vendors that are already in the mix, making it hard to stay objective in the supplier-selection process.

By harnessing the power of a strategic sourcing platform, when it is time to decide between renewing a contract or saying goodbye to a current vendor, you will be able to take an objective look at your various vendor options to identify which one will meet all of your needs at the lowest price.

“Sourcing and procurement can offer a fresh and different perspective [by] asking hard questions and driving a competitive environment,” wrote Uber’s Head of Global Strategic Sourcing Neil Aronson in the HBR research paper. These are the hard questions that too often get overlooked when departments are selecting vendors, as they are especially difficult for stakeholders to bring up if they already have a personal relationship with a supplier.

Approach No. 2: If you source it, they will come.

Reverse auctions – fixed-duration events that give multiple suppliers the chance to outbid others by decreasing their price point on the desired product or service – are a great way to create an environment of constructive competition with potential vendors. This streamlined sourcing process means that businesses can reduce purchasing costs while still ensuring quality and that all of their needs are met.

Reverse auctions generally save a business anywhere from 10 to 20 percent when used as part of a sourcing strategy, according to Gartner senior procurement analyst Deborah Wilson. In a survey of over 100 sourcing, procurement and finance professionals from across the globe, nearly 70 percent felt that reverse auctions benefit the enterprise, while over 45 percent felt that they also benefit the suppliers.

A little competition never hurt anyone, and if you ensure it is in the best interests of both you and your vendors, it can bring about substantial benefits for your company. A strategic sourcing platform drives efficiencies, brings valuable insights to the surface and creates proven processes for procurement. It can also assist in developing constructive competition between vendors vying for your business, which only makes your job easier when it comes to selecting the right vendors for your needs.

So, buckle down, stay objective and make those vendors come to you. You’ll be rewarded through healthy supplier relationships, sourcing success and, ultimately, bottom-line savings.

Andrew Durlak

Andrew has a rich background in the world of finance from his private equity and investment banking days. He previously worked at Prospect Partners doing due diligence and portfolio management. Prior to this, he executed M&A transactions at Harris Williams & Co. He is a graduate of Case Western Reserve University.

Outside the office he can always be found near water as he enjoys competitive sailing.

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