Category Management at Its Best
By Dr. Tom DePaoli
Office Supplies RFQ
Best practices for Office Supplies are many and varied. They greatly depend on what the customer wants or the Voice of the Customer (VOC). Once I was tasked with completing an office supplies sourcing search for a client in a major western state city at their headquarters, which housed approximately 5,000 employees downtown. I had much previous experience completing four strategic sources of office supplies, so I had a fairly good idea of the competency of the industry suppliers and their pricing structures. I knew which additional total-cost-of-ownership practices to ask for, such as desktop delivery, consolidated billing, and electronic catalogues. It was an exceptional situation for a supplier, because it was one delivery spot for major sales volume. Composing the request for a quote was straightforward, and I used many of the requirements that I had previously used in sourcing requests. My client was eager to get the sourcing process underway and completed quickly.
Consortium or Dense-Pack Approach
However, I soon discovered that there were three other large companies in the same city block housing an additional 15, 000 employees (20,000 total). I saw an opportunity to pool our volumes and presented a proposal to my client. I had shared our expected price reduction and other savings with them prior to the engagement. Now I proposed to the client to construct a request for quote for all of us for office supplies, thus providing even more leverage. I named it the “dense-pack” approach because, once again, the winning supplier would have concentrated deliveries in a close area, which would significantly reduce the winning supplier’s transportation costs. We formed a consortium. The procurement managers were skeptical at first, but luckily none of the other companies were direct competitors.
The hardest part of this approach was next, convincing the other three companies of the merits of this approach. I recommended that they each set up steering committees to choose what services they desired. We sort of used a cafeteria approach where each company selected the service they desired. Fortunately, all of them were familiar with supply management and strategic sourcing. I had to show the expected savings and get them to agree to at least some common total-cost-of-ownership reduction items. Gathering the usage data was another challenge, but we believed that we had fairly accurate volume data when we went out with the request for a quote. Getting agreement to go with the winning quote was not as difficult as I had anticipated, and all four companies had two representatives on the sourcing team. Each company agreed to select their specific supplier services that they valued and asked the suppliers to demonstrate their capability and client references.
The results were fairly astounding, and we doubled the expected price savings. The winning supplier then offered a cafeteria menu of total-cost-of-ownership savings and enhancements that each customer could select. They all selected desktop delivery.
In addition, most of the companies “piggybacked” with the office supplies supplier on other services like document management (copiers), personal computer supplies, software, cleaning services etc. It also led to standardization of the office supplies used which further reduced prices. We were not however, satisfied with the initial success. We expanded the office supplies category and added more items to the category! We created a mega-category! We kept expanding the category for even more savings.
In summary, we clearly understood the market, the pricing structure and the services offered. The biggest challenge, as usual, was getting customer buy-in and consensus. But we were wildly successful!