Rogue spend is often driven by stakeholders improvising because they need to get their job done and procurement doesn’t seem to be helping.
Procurement professionals often focus on high profile, strategic and high volume spend.
This makes perfect sense because success in these areas can deliver huge savings.
If you had to guess the percentage of total spend that is typically under management what would it be?
Most professionals I speak with put the number at 40% for their companies.
It varies by department, group and division. So it can be as low as 20%.
The nature of your business impacts the percent especially if indirect spend is significant.
Stakeholders improvise for many reasons:
- Job security
- Cumbersome procurement processes that require the same amount of effort for simple buys as strategic ones
- Changing operational demands that necessitate flexibility and speed versus rigidity
- Procurement is slow to respond even if the purchase is urgent
- Stakeholders frequently believe they know the best suppliers based on experience
- The process they use minimizes issues to resolve from suppliers or vendors
It is hard to disagree with these reasons but there are other factors that have motivated some companies to change.
The driving factor is simplicity and speed – make systems work for you not against you.
Huge cost savings by eliminating POs for common recurring purchases – stakeholders now execute these purchases in less than 5 minutes.
- This is a true double benefit because purchases are from suppliers that the company has excellent negotiated contract pricing in place.
Staff reductions or hiring moratoriums motivated companies to purchase bolt-on systems that save 40% or more of the processing time.
- Analysts can respond to stakeholder requests in hours not days and this motivates using approved suppliers and contracts – this is the same benefit as in the prior example.
Repeatable purchases from a known supplier pool can be completed in 60% less time.
- The time can be used to negotiate better short-term pricing and/or longer-term arrangements with suppliers with better track records.
Reducing the number of suppliers is another proven way to simplify and save time and minimize risk.
You may be thinking – I get it but there is no way I can ask for more money for a bolt-on system even if it is easier to use and faster.
If you could execute a short-term lease of a solution to prove the savings, would that motivate you to explore options?
Look back 5 years, if things haven’t changed that much, you can be sure that 5 years from now you will be fighting the same battles.
Remove tedium, save time and people will be motivated to join you.
Ask better questions, make changes and 2020 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. 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 what I have to offer will be right for everyone, so don’t expect a sales pitch. 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.
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