When thinking about procurement (or purchasing), it is important to understand the difference between indirect and direct procurement. While the goal is to get the best product/service at the lowest cost, there are key differences between the two types of procurement:
Indirect Procurement: These are your office supplies, promotional items, computers, etc. For the most part, indirect items are generally less expensive and if something goes wrong, there is minimal disruption to your business. When negotiating with indirect vendors, price should be the key focus. Reduce costs as much as possible, order the product, and go back to revenue generating activities. Joining a GPO is a great way to save time and money. There is no need to negotiate (or shop around) as you gain immediate access to purchasing power.
Direct Procurement: If you are a manufacturing company, these are your direct materials to make your product (steel, plastic, etc). If you are a professional services company, this could be a professional licensing fee or a consulting fee. Typically price and quality are equally weighted. Hypothetically, if you owned an accounting firm and you had a client who has owed you $100,000 for over two years, you might think about hiring a collection agency. If one collection agency charged 15% and the other charged 25% of the amount collected, you might be more inclined to go with the firm charging 15%. Make sure, however, that you look at more than just price. Ask about historic recovery performance, time to collect, the collection process (so you don’t scare away future customers), etc. With direct procurement, there is more to a deal than just cost.
Whether you have an indirect negotiation or a direct negotiation, Procurement Concepts can help. Our GPO is great for indirect and our 25+ years of procurement experience can help you find the best overall deal with a direct negotiation.