How Networking Can Help You Find The Best Suppliers

How can procurement professionals use social networking to find competitive suppliers?

As procurement professionals continue to look for more efficient ways to grow and optimise their supply network to meet demands, the supply market analysis (sourcing) process should be streamlined through online networks, such as Procurious, and offline networks including industry conferences, mixers and memberships.

I recently conducted a research study to investigate how social networking, both online and offline, influences the relationship between supply market analysis and cost reduction. Through online survey responses from existing and former procurement professionals, data was collected to establish the foundation of this concept. Pursuant to a seven-point Likert scale, a total of 51,485 survey participants were asked a series of questions in the context of three areas: supply market analysis, social networking, and cost reduction.

In general, it was discovered that procurement professionals do use social networking to find competitive suppliers. However, the study also revealed that social networking, in and of itself, is not a universal solution for identifying competitive suppliers. Rather, it is another option for finding suppliers that ultimately impact cost reduction. When considering the competitiveness of the supply market, roughly 77 per cent of procurement professionals indicated that their supply market was highly competitive. This suggested that most professionals have the option to switch to alternative suppliers. Social networking revealed that when looked at as a linear combination of network range, network size, and network strength, it amplifies the relationship between supply market analysis and cost reduction. Furthermore, there is an opportunity for professionals to enhance the way they source by concentrating on certain dimensions of social networking.

The post hoc analysis uncovered two key insights regarding the dimensions of a procurement professional’s social network:

1. There is a lack of significance related to network size

2. Network range and network strength foster more social networking value.

Procurement professionals can accomplish this by cultivating closer relationships with their social contacts, and by increasing the communication frequency with their contacts. By doing so, they can effectively organise their social network to source suppliers who ultimately provide improved reduction in costs. When procurement professionals reflected on cost reductions achieved from purchasing decisions, they agreed that they experienced a cost reduction. Approximately, 44 per cent of professionals conveyed that they experienced cost reductions considerably higher than expected based on their actions. This suggested that purchasing decisions can have an impact on cost reduction.

The constructs of supply market analysis, social networking, and cost reduction were adopted from existing research to substantiate the framework of the study. Supply market analysis was measured according to a supply market profile, which considered the competitiveness of the supply market, the number of capable suppliers in the supply market, and the switching costs of the supply market. Social networking was measured through three dimensions of social networking: network size, network range, and network strength. Network strength considered the interaction frequency, relationship duration, and emotional intensity of a connection. Network range contemplated the diversity of contacts in a social network. Network size assessed the total group of links that a person has with another one’s total of information channels. Cost reduction was measured through cost performance, in terms of broad retrospective results. For example, higher than average cost reductions were achieved and cost reductions were considerably higher than expected.

This study revealed opportunities to expand sourcing strategies without limiting the sourcing approach. Social networking can be integrated as part of a hybrid sourcing approach of traditional sourcing schemes to improve cost. When compared to traditional strategic sourcing tactics, understanding the role of social networking can be a viable way to link innovation with the sourcing process. The linkage thus relates to improved cost performance as confirmed by the data collected from procurement professionals.

The content of this article was taken from Adam Cockrell’s dissertation – Supply Market Analysis: The moderating effect of social networking on cost reduction – DePaul University.