Supply Excellence — Inflation Antidote: Be the Low Cost Customer

Inflation Antidote: Be the Low Cost Customer

August 11th, 2008 · by Tim Minahan · No Comments · best practices, sourcing, supplier management, supply management

With revised government figures and economists suggesting that we may already be in a recession and inflation running at 4.2%, many spend management professionals may feel the can do little to drive cost reductions. MetLife CPO Roy Anderson disagrees.

“There are many ways to drive cost savings and better value in the face of a tight economy,” Anderson told attendees of the Achieving Spend Management Success in the Financial Services Sector webinar last week (Listen to the replay here). He should know. Since Anderson took the reins of MetLife’s spend management program in 2001, the nation’s largest life insurer and provider of employee benefits, has seen spend under management jump more than 500%, the amount spend strategically sourced annually climb almost 1,000%, and total spend savings increase 7.5x — all with a procurement department that is 10% smaller.

Anderson said MetLife leverages technology and standardization to lower operating costs and improve team productivity. The company continues to target new spend categories in markets that are less impacted by the current economic situation. And his team works closely with finance to document savings and, once achieved, insure that these savings are removed from the business’ budget.

Yet, Anderson says one of MetLife’s key advantages in driving spend management transformation in the face of the economic storm “is to become the low cost customer.”

“We have taken great efforts to simplify, standardize, and automate our supplier interactions,” said Anderson. “We get the work to suppliers through the [sourcing] application so they can bid effectively and lower their costs. We automate transactions and communications so they can lower their costs and have transparency into the process. And we have automated the invoicing process so it can lower their costs and they can get paid more effectively.”

Anderson suggests that being the low cost customer has not only helped MetLife keep down supply costs but it has also forged tighter supplier relations and more reliable supply in the face of a down economy.

MetLife is not alone in its strategy to win preferential supplier treatment by being the best customer. As noted in previous Supply Excellence posts, other leading companies are using equitable and efficient supplier relations as a spend management edge. Just two examples:

“A customer of choice consistently receives competitive preference for scarce resources across a critical mass of suppliers in its database,” said one Hess procurement executive.
Tom Stallkamp - former Chrysler CPO and President - said it best, “In order to fully reap the benefits of a world-class supplier, we must become a world-class customer.”

In short, companies that have transparent, consistent, and efficient procedures for supplier negotiations and relationship management are more likely to get better prices, services, and more reliable supply than those merely looking for additional price concessions. For more tips on how to become the low-cost customer, catch the replay of Roy Anderson’s presentation here.

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