It can be a challenge to motivate stakeholders to partner with procurement to cut fat.
Politicians love to promise that they will cut the pork in spending. This is an easy promise to make and a very hard one to fulfill.
I will share a personal experience to illustrate this idea.
I recently completed my 3-year term as President of an HOA.
There were five members on the Board and we held our dues at the same level during the 3 years.
Unfortunately, my goal had been to reduce them.
There were two fundamental reasons that we were unable to reduce the dues:
- We were committed to 94% of our spending to maintain our services and amenities at the same level. The spend for payroll, insurance, utilities, landscaping and maintenance was essentially the same dollar amount each year. Prior boards had worked to eliminate unnecessary spending in these categories so there was very little to trim.
- The other board members were unwilling to reduce or eliminate any current service or amenity because they feared backlash from the homeowners. This was the case even though we had proof that the use of certain amenities had dropped significantly in recent years. Cutting back on maintenance items like painting and pruning could have saved some dollars but may have impacted property values in the long run.
This is a similar dilemma that procurement faces when they look to reduce spending in many categories.
I believe that there are attitudes and beliefs that procurement needs to overcome to maximize savings:
- People are reluctant to give up what they have even if they really don’t need or use it.
- There will be resistance to a product redesign to make it more efficient to produce if it is working well and customers like it.
- There is a base level of spending that is required to maintain the current level of an operation.
Cutting heads is never popular but it is easy to understand why companies will rely on this to reduce costs. Reducing headcount forces people to change.
I don’t want to appear to be naïve because I believe that you can create an atmosphere that fosters a focus on process and product improvement.
One exercise that I have found to be helpful uses the following question to start the process.
“If you had a choice – reduce headcount or find process improvements and cost savings, which approach would you be motivated to work on?”
The answer is obvious. No one wants to be left in a department or group after a headcount cut.
Stakeholders know where savings can be found. They know which suppliers are cutting corners and where service is slipping. They can point out process inefficiencies that lead to rogue spend.
You do need to ask for their help and be ready to deliver on your end.
I like to ask: “if you could wave a magic wand and change things, what would you change first?”
I know one company that operates in New York City that provides lunch for all employees. Surprisingly, there were a lot of complaints about what was served each day and plenty of food was wasted. The cost of providing this perk kept going up and so did the complaints.
Faced with the prospect of eliminating the perk – the employees came up with a better solution.
They now use a lunch delivery service that offers a wide variety of options from local restaurants. Each employee is given a fixed daily allowance to use. If they go over it, the difference is automatically billed to their credit card.
This has worked well for the company and the employees. The company has reduced the cost of providing the perk. Food waste and the setup and cleanup of the lunch area has been eliminated. Complaints have virtually disappeared since the employees get what they want for lunch.
Now you may be thinking that facing a threat of losing a perk is a pretty strong motivator and you would be right. I also have worked with groups that were motivated to reduce costs and eliminated waste because that was a clear goal that was supported by management.
Creating and fostering a strong relationship with your stakeholders will help your organization to cut the fat. It will uncover cost savings and process improvements that will make everyone look good.
Action Step: Every organization can get better. Finding and creating success is often a matter of taking the first step. If you are uncertain where to start, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want. If you would like to explore this topic in greater detail, please contact me.
If you want to explore a purchasing or procurement topic in greater detail, I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that my recommendations will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
Organizations of all sizes are reducing costs and increasing efficiency, without changing the way they conduct business. If you would like to know how, 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