I.

Manage spend
1. Demand management
 A1 Demand reduction: Objective analysis of the justification
for a particular demand.
 A2 Compliance management: This primarily involves the
increased use of master agreements and preferred suppliers,
as well as compliance with company wide policies.
 B1 Contract management: Even the best contracts are of little
use if
nobody is familiar with them. Contract management has the
aim
of creating transparency with regard to existing contracts
throughout the company, as well as consolidating contracts,
thus achieving better terms for all internal customers.
 B2 Closed loop spend management: The aim of this holistic
approach is to permanently observe all areas of potential
value and take appropriate measures when required.
2. Co-sourcing
 A3 Procurement outsourcing: Responsibility for purchasing is
delegated to an outsourcing partner with significantly greater
demand power.
 A4 Sourcing community: Several companies, each with low
demand power join forces in order to achieve sustained
savings. Sourcing communities go beyond mere volume
bundling arrangements: they are able to pursue complex
strategies because they can share resources with the other
members of the sourcing community.
 B3 Mega supplier strategy: Its primary aim is to make both the
company and the supplier aware of how large the mutual
business actually is. Instead of negotiating on the level of
individual sourcing categories (for which the company has
little demand power), all purchases from the same supplier are
negotiated together.
 B4 Buying consortia: Buying consortia are loose cooperations
of firms aimed at obtaining advantages on the sourcing
market. In contrast to sourcing communities, they are of
limited duration
3. Volume bundling
 C1 Bundling across product lines: Bundling similar bought-in
parts for all product lines.
 C2 Supplier consolidation: Bundling similar bought-in parts
from one competitive supplier and cutting out the others. This
specifically means eliminating smaller suppliers and
strengthening ties to bigger or strategically important ones.
 D1 Bundling across sites: Bundling across individual company
locations can be used specifically for those sourcing
categories that could be supplied by the same supplier on
global or regional markets.
 D2 Bundling across generations: Bundling across product
generations is especially important for project-driven
businesses. Concessions are obtained from the supplier for the
current project on the basis of binding or non-binding
promises for the subsequent generation
4. Commercial data mining
 C3 Master data management: Classification of all
material/supplier master data through the application of
standardized logic, consistent link-up of master data to the
ordering system and avoidance of loosely worded purchase
orders
 C4 Cost data mining: In this case, existing data on a sourcing
category is analyzed in depth in order to identify any savings
potential.
 D3 Spend transparency: Creating transparency for all
spending within the company in the form of a spend cube. The
main axes of the cube are sourcing categories, suppliers and
sites, which can be sliced and diced across all dimensions.
 D4 Standardization: Replacement of custom specifications by
standardized parts and industrial standards.

II. Change nature of demand

1. Risk management
 A5 Bottleneck management: A combination of steps to
facilitate proactive avoidance, early recognition and adoption
of timely countermeasures against bottlenecks. The aim is to
ensure the supply of end products to the customer under all
circumstances.
 A6 Vertical integration: In a seller’s market with constantly
rising prices and restricted supply, the long-spurned method
of vertical integration is coming back into favor.
 B5 Political framework management: With skillful lobbying, it
is possible to maneuver a monopolistically operating supplier
 into a position that works to the advantage of the dependent
company.
 B6 Intelligent deal structure: Especially when purchasing from
monopolistic suppliers, careful drafting of contracts is of
paramount importance. Contracts skillfully designed to suit
the specific demand structure of the company can be a
competitive factor of considerable importance.
2. Innovation breakthrough
 A7 Core cost analysis: In essence, core cost analysis is a
“zerobased method” to product development. Instead of
dragging along all the extras that have attached themselves
to a product over the years, one goes back to basics and asks
what functions are absolutely essential. The product is then
radically optimized in line with these basic requirements.
 A8 Invention on demand: Patent-protected suppliers
constitute a particularly difficult challenge to purchasing.
Under the invention on demand strategy, which is based on
the TRIZ method, alternative technical solutions are
systematically developed, taking account of ideas from all
scientific fields.
 B7 Design for sourcing: By fostering closer cooperation
between R&D and purchasing, design for sourcing generalizes
specifications to such an extent that they are no longer
tailored to suit just one particular supplier.
 B8 Leverage innovation network: R&D is fostered through
cooperation in a cross-company innovation network. This also
allows the company to gain new insights into innovative
technologies. By looking beyond its own backyard, the
company frees itself from long-standing supply dependencies.
3. Technical data mining
 C5 Product benchmark: Product benchmarking enables the
comparison of the different design solutions that are available
on the market.
 C6 Composite benchmark: In this case, a selection of
competing products is sent to several suppliers for component
analysis. The suppliers make proposals and submit offers at
both the component and product level. By combining the best
proposals, a “best of the best” concept is arrived at, while
insight is also acquired into the suppliers’ production costs.
 D5 Complexity reduction: Product complexity is rendered
visible and tangible through structured variant trees. As a
result, the number of variants can be systematically reduced.
  D6 Process benchmark: Process benchmarking is the
comparison of costs for individual production steps, such as
surface treatment of turned parts. The resulting figures
provide a basis on which purchasing can negotiate processing
costs directly with the supplier.
4. Re-specification
 C7 Product teardown: Product teardown means breaking down
competitors’ products into their component parts and
comparing them with one’s own solution
 C8 Functionality assessment: The costs which each function of
a product incurs are attributed to that function. An
interdisciplinary team then identifies functions that are
dispensable or that could be provided more cheaply.
 D7 Design for manufacture: Design for manufacture is a
systematic process for designing products (or modifying their
design) so that they are easy and inexpensive to produce.
 D8 Specification assessment: Specification assessment means
critically evaluating current specifications and asking whether
they are in fact useful or merely increase cost and complexity.
Specifications that are not necessary are amended
accordingly.

III. Leverage competition among suppliers

1. Globalization
 E1 Global sourcing: Global sourcing aims at selecting the most
competitive suppliers worldwide.
 E2 Make or buy: Except where core skills are concerned,
internal production must be exposed to competition with the
supplier market, and vice versa. Focusing attention on this
topic often produces surprising results.
 F1 LCC sourcing: Low-cost country sourcing is primarily aimed
at identifying, assessing, and utilizing suppliers from countries
with low factor costs.
 F2 Best shoring: Best shoring aims at evaluating what region
and what supplier are particularly suited for outsourcing within
the value-creation process. Along with a business case
analysis, this strategy also involves holistic assessment of
risks.
2. Tendering
 E3 Supplier market intelligence: Supplier market intelligence
comprises the systematic gathering, evaluation, and
 utilization of information on all incumbent and potential new
suppliers.
 E4 RFI/RFP process: The RFI/RFP process encompasses the
systematic preparation, dispatch, and evaluation of supplier
information (RFI = request for information) and solicitations
for offers (RFP = request for proposal).
 F3 Reverse auctions: Through the use of web-based tools,
reverse auctions can be used to accelerate the negotiating
phase of the tendering process.
 F4 Expressive bidding: Expressive bidding refers to obtaining
supplier offers while allowing for “if-then” conditions.
3. Target pricing
 G1 Cost based price modeling: Cost based price modeling is a
process-oriented method for determining target prices. The
bases for target prices are the individual process steps, to
which reference values can be applied.
 G2 Cost regression analysis: Cost regression analysis is a
statistical method for determining target prices on the basis of
several technical parameters.
 H1 Linear performance pricing: Linear performance pricing is
a method for identifying the main technical cost driver for the
product price of a group of materials.
 H2 Factor cost analysis: Factor cost analysis is a method for
systematically identifying, analyzing, and comparing relevant
factor costs. It can be used as the basis for comparing the
factor costs of various suppliers and thus determining target
prices.
4. Supplier pricing review
 G3 Price benchmark: Price benchmark is a method of
comprehensive comparison of product prices and contract
terms.
 G4 Total cost of ownership: This concept comprises the holistic
identification, evaluation, and analysis of non-recurring costs,
production costs, transport costs, complexity costs, and
operating costs.
 H3 Unbundled prices: Unbundled prices aim at breaking down
the total price of a product or service into the relevant cost
elements in order to invite separate bids for each of these
elements during a tendering process.
 H4 Leverage market imbalances: In this method, the aim is to
systematically identify market imbalances and exploit them
for purchasing purposes. Market imbalances can come about
as a result of variable capacity utilization across certain
 regions, differing price mechanisms, or fluctuations in factor
costs.

IV. Seek joint advantage with supplier

1. Integrated operations planning
 E5 Visible process organization: This is an innovative form of
organization characterized by the permanent co-location of
decision makers and the implementation of a dynamic re-
planning process. Through improved information flows, the
company avoids disruption costs.
 E6 Collaborative capacity management: Deficient
communication between customer and supplier can lead to
capacity bottlenecks and production losses, with sometimes
serious consequences. Collaborative capacity management
ensures ongoing reconciliation between demand and capacity
with regard to a selected critical component volume.
 F5 Vendor managed inventory: Here, inventory management
is placed entirely in the hands of the supplier. The supplier
usually has electronic access to consumption and inventory
data. Greater planning freedom enables the supplier to cut
costs.
 F6 Virtual inventory management: All inventories at the
supplier and customer locations, as well as in the hands of
logistics partners (i.e. en route), are included in the inventory
optimization process. If IT inventory systems do not supply
integrated data, an auxiliary solution will be necessary.
2. Value chain management
 E7 Supplier tiering: Supplier tiering can work in two directions:
it uses key suppliers to bundle upstream tier-2 suppliers, thus
relieves the company of the need to manage a large number
of suppliers; or it does the exact opposite by breaking up
already existing structures and cutting out tier-1 supplier.
 E8 Value chain reconfiguration: Existing value chains are
analyzed, broken down into their component parts, and then
recombined in a new configuration. The aim is to acquire or
maintain maximum control of key stages and processes, thus
internalizing core competencies as a competitive advantage.
 F7 Sustainability management: Sustainability management is
the integrated management of the company and its value-
creation chain in accordance with economic, social, and
ecological principles.
  F8 Revenue sharing: A defined percentage of sales revenue is
shared with the supplier. This makes sense especially in cases
where a bought-in part contributes significantly to the overall
perception of a product.
3. Cost partnership
 G5 Supplier development: Supplier development has the aim
of fostering attractive new suppliers and/or small incumbent
ones, and developing them into key suppliers.
 G6 Total lifecycle concept: The total lifecycle concept
regulates in detail how sales revenue and costs are distributed
between the company and suppliers over the entire product
lifecycle.
 H5 Supplier fitness program: The supplier fitness program
helps suppliers through targeted measures to eliminate
weaknesses within their own value creation processes, thus
making them more competitive.
 H6 Collaborative cost reduction: The company and suppliers
jointly develop ideas for cutting costs and then share the
savings.
4. Value parnership
 G7 Project based partnership: For companies and suppliers
wanting to cooperate for a limited period and within a limited
scope, a project based partnership is a suitable cooperation
model.
 G8 Profit sharing: Instead of the traditional method of paying
suppliers a product based purchasing price, one can agree to
share the profit. This especially makes sense when the
supplier has an overwhelming influence on the success of the
business.
 H7 Value based sourcing: Value based sourcing is an approach
whereby suppliers are selected in terms of their capabilities
and are continually encouraged to innovate, the goal being
value maximization.
 H8 Strategic alliance: Strategic alliances with suppliers, i.e.
permanent collaboration with a partner, are appropriate where
a company does not wish or is not able to maintain certain
strategic capabilities internally, or has no possibility of vertical
integration.