2023 is going to be a game-changer for the truly advanced Procurement team, and it is going to be a nightmare for mediocre ones.
Why?
Well, almost everybody is apprehensive about the 2023 economic scenario. Weakening consumer demand and lesser sales revenue would mean additional pressure on cost optimization (and hence procurement) for margin improvement. This, combined with the Supply chain crisis and inflation, is forming the Bermuda Triangle for Procurement in 2023.
Cost savings won't be easy to come in.
However, this is where you will 2 different approaches from the best and the mediocre team.
Mediocre teams will continue to think of Negotiation as a zero-sum game in 2023. Hammering down the suppliers to gain artificial cost avoidance scenarios. Short-term focus!
Whereas for Best in the class teams, 2023 doesn't look like a year for the Zero Sum Negotiation game. It is rather much more.
They will look at 2023 as a positive-sum game and work with like-minded suppliers.
The top 3 innovative practices that I see emerging are
1.) Gain-Pain share models:
Think of this as Hedging 2.0. Until now, hedging was only done in forex/currency exposures, but now it will expand into supply chain and procurement. Co-own the risk of inflation or price reduction benefits and share equally!
Start the work on this now!
Fine-tune your cost models to add an element of Gain-Pain share
Furthermore, you can look towards changing the manufacturing base to low-cost base countries, look for free trade agreements based on country of origin to reduce custom duty tariffs etc.
2.) Standardize Specifications and Consolidate Volume:
More than your internal technology team, it is your top supplier who can suggest a specification standardization with quantification of positive business impact. And it is only Procurement that can make it happen. Work with your suppliers to standardize your specifications and then evaluate if you can consolidate the demand. That's how you can get leverage to negotiate a better deal.
3.) Process Optimization:
Trust me on this, you will need agility in 2023 to make decisions. If there are processes that don't make sense, kill it now. Re-organize your team to be more decisive. Process optimization time is right now!!
There are tons of ways to ride the wave of opportunity in 2023 if you think beyond zero-sum game of negotiation!
Upgrade your team to become a better negotiator in 2023.
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