Knowing Controllable Spend Is Fundamental to Producing Verified Savings

Knowing Controllable Spend Is Fundamental to Producing Verified Savings

The very first question that I will ask a prospective client is: What is your controllable spend?

The second question is: What is the total of the verified savings your group achieved in the past 12 months?
The answers that I receive are indicative of the number of challenges the Chief Procurement Officer is facing.
For many CPOs the challenges can be overwhelming. In many organizations sourcing responsibility is spread across divisions, groups, locations and profit centers among multiple spend owners. Systems have grown in an ad-hoc manner and don’t talk to each other or can’t even be coded to allow sharing of key data. In some organizations the CPO may not be viewed as a true C-level player. Without a strategic vision and the information and systems to support it creating a strategic sourcing platform will simply be wishful thinking.
Is it any wonder that these type of challenges make it virtually impossible to even know controllable spend?
If you don’t know what your controllable spend is, then how can you expect to control it or verify savings?
I would start the process of change by asking these two key questions:

  1. What information do we have in each payment, procurement or financial systems that will help identify controllable spend and determine sourcing opportunities?
  2. What specific steps do we need to take to gather the information that could help us grab some low hanging fruit and generate verified cost savings?

The staff in the trenches have the answers to these questions. Asking them will make them believe they are part of the solution and get them engaged. Management may have some ideas but the folks dealing with day-to-day issues are much more likely to know what opportunities exist.
Once you have the answers, finding sourcing opportunities should be the easy part. The next step is determining the size of each opportunity and that will likely come down to coding at the SKU, item or commodity level. Creating the ability to code at this level will be a major undertaking to create this functionality in all procurement and payment systems. Accumulating the data in an offline system using spreadsheets will speed up the process in the short run. The goal is to generate verified savings. These savings can then be reinvested to update payment and procurement systems which would be a major step toward controlling spend across the enterprise in the future.
This is pretty simple in concept – find out the real controllable spend in your organization. This number alone may elevate the role of the CPO once the CEO realizes what the opportunity is. As a wise friend once told me “if you don’t know where you are going any road will take you there.”
Action Step: What would be a good next step?
It should be pretty simple to identify several spend categories that are out of control or seem to be. Digging in to find out the size of the controllable spend in these areas would be next. Once you get the answers be ready to take action. Having the benchmark of controllable spend will allow verification of savings.
EC Sourcing Group is one of the companies I represent because they help procurement teams deliver quantifiable cost and time savings. 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.
You Won’t Drift to Success©
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Until Next Time, I Wish You Great Success in Your Business and in Your Life
Mike Jeffries