Sourcing Challenges for Chief Procurement Officers in Realizing Negotiated Savings
Sourcing challenges for most CPOs look a lot like they did before the explosion in technological tools designed to help manage the sourcing process. Tools that allow companies to source faster and collect better data won’t help if there are not enough hours in a day to track the process.
The same issues in realizing negotiated savings and proving them remain. Like most C-level executives, CPOs who can drive down costs without sacrificing quality will stand out in their organization. This will naturally benefit the organization in the market.
Last year I wrote about Sharp Spend Analysis© and how it helps CPOs get a clear picture of their goal. Procurement teams that are on the same page will be much more likely to achieve real savings and be able to prove it.
See if this sounds like a familiar scenario:
Expected savings in several key spend categories are not being realized based on the latest financial statements. The results do not match up with the projected cost savings in recent sourcing events in those same categories.
What could be some of the potential reasons this has happened?
- The product or service requirements in the sourcing event may have been too tight. The suppliers have negotiated changes in scope directly with the end users. The end users don’t have the luxury to go back and start over so they agree to reduced scope or increased price to keep the product or service on track. This is sometimes referred to as scope creep.
- Suppliers may not be adhering to all of the contract terms. The new terms may not have been communicated properly to all levels at the supplier. Another issue is that the requirements to accumulate sales data in new ways may be a headache or not easily attainable with the supplier’s accounting systems. Without the additional data it will be impossible for the supplier to properly calculate discounts and rebates based on the new terms.
- The buyer’s accounting and purchasing systems don’t “talk” to each other at the SKU, item or commodity level. The buyer’s accounting system may not provide the proper information to know if they are entitled to the negotiated discounts and rebates. This makes tracking of the expected savings nearly impossible.
As a CPO what can you do to resolve these issues?
- Companies frequently have huge amounts of data available to help make better decisions. Typically, the data resides in different procurement and payment systems. In many cases, the data isn’t coded in the same manner in different systems.
- Collaboration and information sharing throughout the sourcing process is an important first step. This will involve breaking down some barriers or calling in some favors to get the information you need.
- Starting with a study of the key sourcing events that did not achieve the expected results. Collect the key spend data from the RFP and compare it through to billing. Determine if the actual terms are different than the negotiated terms.
This is pretty simple in concept – find out if the price you negotiated is the price you paid. It shouldn’t be that hard but it is one of the top challenges for CPOs.
Action Step: What would be a good first step?
I would start by targeting just one spend category that isn’t delivering expected savings and work through the steps outlined. Then be ready to take action to fix whatever is wrong.
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.
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