Procurement teams frequently struggle to find and produce cost savings on a consistent basis. The biggest challenges they typically encounter are obtaining quality data and the time to analyze it.
CFOs, CPOs and other C-level executives who are able to reduce costs and maintain quality will be recognized for their efforts. Many turn to headcount reductions as a way to control costs but this strategy is fraught with unfavorable outcomes.
A base level review of the information available in your financial systems is a better strategy. This approach is much more likely to uncover savings opportunities that aren’t apparent in most financial reports and analysis.
This week I will review one approach to help your procurement team uncover some of those savings opportunities.
C-level executives normally receive summary variance analysis reports. The more expenses that are included in each line the more challenging it becomes to discover the opportunities. Over and under budget items can offset and hide those opportunities.
Procurement teams that have access to data that shows what they are spending at the commodity, item or SKU level will be in a strong position to uncover cost saving opportunities.
Office expense is a difficult category to analyze because it typically contains many items that don’t tie directly to revenue. Sourcing from local, regional and national vendors is common for office expense items. This is clearly not the most efficient approach.
To demonstrate a more efficient approach I will review a straightforward example using only envelopes.
Here is a list of basic data needed to complete the analysis on envelopes for a given time period:
- Total spending by company location
- Spending by vendor for each type of envelope
- Total spending by vendor for all types of envelopes
- Total spending by vendor for all items included in the office expense category
This information should allow you to determine:
- The range of costs for each type of envelope
- The range of costs by vendor/by item for ranking purposes per item
- Total spending by vendor to determine operational concentration and/or dependence
Procurement teams that have all of this information will be in an outstanding position to identify savings opportunities.
An ideal next step would be to conduct an RFP on key items or a basket of items. A SoftAuction™ or reverse auction should put your company in a very strong position to reduce costs and to find an ideal price point and quality for each item or basket of items.
Action Step: What purchases should you look at first?
I would start by asking these questions:
Can we obtain strategic sourcing data at the commodity, SKU or item level for commonly purchased items?
How quickly can we obtain this data?
Is it in a format that can be easily aggregated for analysis purposes?
If you can obtain the recommended information from your financial systems then you will be in great position to perform the analysis.
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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