Fundamental to strategic sourcing is knowing what your organization is buying. Which vendors are vetted and who has the authority to buy from them is equally important. These may seem like basic information needs but many companies simply don’t have it readily available.
There are usually a number of factors that have added to the problem.
- Many of these are based on the business structure. There can be a host of sound business reasons for businesses to operate autonomously. If each business unit operates this way then many opportunities to strategically source for the entire organization will be lost.
- Smaller organizations have the same issues even if they have a limited number of business units or groups. Smaller staffs are not likely to have the time or the policies and systems in place to effectively control spending.
- People that have had the authority to buy may react negatively if controls and information requirements are suddenly thrust upon them.
If you are a CPO or CFO and you are faced with this or similar challenges, where could you start?
Based on my experience making a full system change will take a tremendous amount of resources and time to implement.
I would recommend what I like to refer to as a “learning approach”. Everything policy, practice and procedure is in place because it made sense at one time or another.
- People in your organization know where things could be done better to save or make money.
- Ask them to identify the top three things they would change in spending if they were in charge. This is a good way to get the ball rolling. This will uncover opportunities that may not be apparent based strictly on internal financial reporting.
- Identify the three biggest spend items in each expense category at each business unit.
- Identify the ten largest vendors by business unit.
Once you have this basic information you can focus on what is being purchased by common or similar vendors. In addition, you will know the largest items in each expense categories.
- This will likely take some digging and cooperation from the financial group. Individual invoices may need to be examined along with purchase orders to determine common items and services being purchased. These can then be quantified on company-wide basis.
- Estimates can also be used in this initial step since the goal is to identify opportunities. There isn’t a need at this point to know the impact exactly. A sound approximation will do.
- I am not suggesting that you look at every vendor and every category. By focusing on the largest vendors and categories some big initial wins should be achieved.
If you are uncertain whether this approach makes sense consider this example.
I am familiar with one company that was being charged significantly different rates by a key vendor. The rates differed by business unit and region and this discrepancy was not apparent until the business units shared information. Gathering the information I listed allowed them to find the issue and then negotiate a refund and consistent pricing going forward.
Action Step: This type of analysis is vital and achievable with just a small effort. If these problems sound familiar, take the first step and gather the information. The next steps should be obvious. If you need help there are many qualified professionals like myself that can help you implement the changes needed.
EC Sourcing Group is one of the companies I represent because their tools have been created by dedicated and experienced sourcing professionals. They know the day-to-day challenges your team faces and have built their tools to solve them. If you want to know how, I invite you to request a demo or 30 minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at (973) 718-7071 x875. The call will be forwarded to my mobile phone if I am not in my office which is pretty likely.
Next week I will continue on this same theme so your organization can improve your bottom line. If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life