Organisations and their respective procurement and contracting departments are constantly looking for ways to reduce costs and improve outcomes to attain a competitive advantage over competitors. One approach is to source good and services from low cost regions. Although not a new technique, in recent years Low Cost County Sourcing (LCCS) has become increasingly entrenched within the overall sourcing strategy, especially with the increased costs of wages and associated goods and services in Australia.
Yet with so much focus on LCCS, many companies still feel that they are not maximising the benefits, with supply risks, lack of internal experience and cultural barriers sighted as primary deterrents. more
Predominately it’s the case that during procurement activities buyers rely on the competitive tension from the market to ensure a competitive pricing is achieved from the process. During the business case stage projected procurement costs are developed but tend to simply be based on historical expenditure, perhaps modified to allow for changes in predicted future usage, influences from new technology and inflation factors. However, there is a high degree of uncertainty with the accuracy of these estimates.
As a result of the above, when tender responses are received and commercial evaluation is undertaken, price evaluation and price negotiations can be problematic, as the buyer does not have a detailed understanding of the tenderer’s cost structure / influencing factors. Without this knowledge the buyer’s ability to adequately evaluate and negotiate price is diminished.
With an increasing focus to obtain maximum value for their organisation, buyers are seeking to acquire additional market intelligence to reduce current costs, with one such method being ‘Should Cost Analysis’. more
Procurement is changing. Gone are the days where major projects were automatically delivered by having one party hold all the risk, either the buyer with a Cost Plus Contract or the supplier with a Fix Priced Contract. Relationship Contracting such as Partnering, Public Private Partnerships (PPP), Early Contractor Involvement (ECI) and Alliancing Contracting is becoming increasingly common. Over time it has evolved and been refined to the point where it is now widely used in both the public and private sector. Focusing specifically on Alliance Contracting, this article provides an overview of the fundamentals. more