In our previous article we have considered the targeted procurement strategies in the tactical area of preferential procurement. This requires a specific focus on various targeted procurement interventions for Black or Black Woman Owned QSE/EMEs. Your Preferential Procurement strategy will be one of the three strategies that you will need to consider as part of your ESD plan. In this post we will consider the Leverage Sourcing arena.
The leverage sourcing arena normally considers gaining discounts based on economies of scale. In this arena you would leverage your relationship or your spend with the supplier in order to extend the relationship further. This is also normally the place where contracts would be put in place. Here are some of the targeted procurement interventions that can be followed in this arena:
Targeted procurement by increase spend on related services/goods
This is a natural next step for any purchasing relationship that is going well and could see the transition from the tactical arena to the leverage sourcing arena. The risk here is however that the buying company expects discounts from extending the relationship which with the extended expectation of volume could place the company in a cash strapped situation.
This strategy could involve broadening the volume of supply or could involve increasing the scope of the goods and services that are offered.
Targeted procurement by increased spend on unrelated services/goods
Here the procurement relationship would be extended to other goods or services that the company offers that might not be what the suppliers were considered for initially. An example of this would be what has taken place in the facilities management industry with one company taking care of all your needs around catering, cleaning and building maintenance.
Total managed solution strategy
This strategy considers using an approach where one company manages the contracting relationship with the buyer, but brings to the party the transactional relationship with various SMME’s. This could take the form of an owner managed trucking system where one company manages the logistics of the various owner managed trucks while the buying company also benefits by transacting with the various truck owners as individual QSE/EME companies.
During this intervention a company decides to move from in-sourcing to outsourcing thereby effectively moving the services onto a third party. The services here wold be relatively close to the value chain and would be high in spend which would have led to the decision in the first place to in-source.