Most procurement departments are familiar with running an office products Request For Proposal (RFP), especially the time, effort and resources required. Years of running RFPs may give a company confidence that they are putting in place an effective office supplies contract with negotiated savings. However, hidden costs are not always uncovered with an Office Products RFP.
A Changing Industry
Procurement is now faced with a different industry landscape and diminishing opportunities for savings as they go through a fourth, fifth or even sixth version of their contract. Signing bonuses, guaranteed rebates and favorable initial core lists have become common themes with an office supplies RFP.
What RFPs tend to miss, though, are what happens in the years after the contract is signed. Upfront savings look enticing, but rarely are they sustainable for the life of the agreement. Companies will bid a smaller set of products which they think are their top items and will typically receive very low pricing. However, these items are often subject to substitute products and margin floors. Suppliers will write in the contract that they must maintain a certain percentage margin, say 20%, on products and this can drive up price if these suppliers say that their costs are going up and margin must be maintained.
In addition, a core list will on average change by 20% each year, and as a result, 12% – 17% savings leakage occurs from obsolete or discontinued products. By year four of the contract, as many as 50% of the original core items will no longer be available and the percentage of core purchases has decreased significantly.
Finding the Right Solution
What is the solution to this problem? Rigorous contract management. Contract management allows companies to monitor their office product spend to ensure they are getting the most savings possible for the life of the contract. In office supplies, this involves a few components:
- Core List Review
- Identification of alternative products
- Management of custom core
- Price and SLA auditing
- SKU rationalization
Conducting an RFP every few years to identify savings on a program that was unmanaged and saw various price increases only results in diminished returns. Working with a Group Purchasing Organization (GPO) improves speed to savings, ensures lifecycle management and reduces internal resource requirements.
Working with the Right Partner
Corporate United dedicates more than 500 hours annually to track consumption, manage contract terms and drive supplier performance to help you procure office supplies more intelligently. The result is a fine-tuned program that not only delivers sustainable value, but also prevents the undetected hidden costs commonly associated with unmanaged programs.
To learn how you can avoid price creep and better manage your contract lifecycle, contact Corporate United today or call us at 440-895-0938.