Developing a Sourcing Strategy for Lab Consumables

The category of lab consumables is often overlooked due to both spend and diversity in terms of the products sourced. Companies are frequently procuring lab consumables from over a hundred suppliers with 1 or 2 preferred suppliers; as a result, the compliance to approved vendors is around 40-50 percent and purchasing companies are not able to leverage volume discounts.

Large organizations with global operations and millions of spend have an opportunity for cost savings in shifting from a preferred supplier model to an aggregator model. In an aggregator model, a preferred vendor acts as an intermediary or channel partner between the buyer and the local suppliers of products they don’t supply. The preferred supplier procures these products from the local suppliers and supplies them to the buyer, completely managing the supply, payment and price.

The aggregator model frees the buyer from managing hundreds (or thousands) of suppliers, thereby reducing administration costs. It also helps with standardization, increased compliance, reduced inventory levels and volume discounts. Some pharmaceutical companies have already started to implement this model and are seeing the benefits in the form of millions of saved dollars and improved processes.

Use of a cost-plus price model: Most companies are currently using discounts on list prices, but in this situation, the buyer does not know how much of a margin the supplier is charging. As an alternative, companies could shift to a cost plus pricing model in which they know the margin being charged. Currently, only a few companies are using this model, as suppliers are reluctant to offer cost plus pricing.

Sourcing all lab supplies from two vendors: There are few companies that have gone a step further and consolidated purchasing of all of their lab supplies from two suppliers who work closely together: one for lab supplies and scientific services, and one for lab equipment services. This arrangement leads to harmonization and standardization benefits, volume discounts, better productivity and global inventory management systems.

Large global companies have the potential to save millions by implementing new sourcing and pricing models. The benefits can include cost savings from volume discounts, increased business compliance, reduction in product range due to standardization, reduction in stock level, reduction in supplier base, and increased productivity, as end users spends less time on support functions.