There is basic information that procurement can’t get and it is killing the bottom line in many companies.
I was in a meeting with a prospective client yesterday. One of the capabilities they were very interested in acquiring really resonated with me. It also made me think about similar information requests from other clients and prospective clients.
It made me realize that the information they are looking for and their inability to get it may be a much bigger issue than I realized. In fact, when I went back to my notes I could see that virtually every client and prospective client has asked about this in one form or another.
They wanted the ability to track trends in purchases at the unit level over different time frames.
Seems simple enough. Unfortunately, most financial and procurement systems don’t have that capability.
Many don’t have it because the suppliers aren’t providing it. Others do have it or could calculate it but don’t have the staffing to do it. Still others don’t have the capability to put it into the system.
Here is a very real personal experience to demonstrate my point.
- Years ago I worked for a plastics manufacturer.
- Two groups of materials represented about 60% of our material cost on most items.
- Storage constraints required us to order materials two or three times a week.
- The financial staff issued a daily report with the price per pound of all of the materials purchased in these groups.
- They also provided trends on the purchase price of these items in comparison to last month and the last three years.
- This daily report had been in place for 30 years in this company when I arrived. It was generated manually for many years.
- The CEO could estimate very quickly the impact on profitability for the day just based on the purchase price of these materials.
As you are reading this – doesn’t it seem surprising that long before gigantic spreadsheets and massive procurement systems that a simple manual report produced information we can’t get our hands on today?
It sure does to me.
I am not advocating collecting trend information on every spend item. This would be like the vast amount of statistics now available in professional baseball. The manager knows that a hitter has a higher average against a pitcher in virtually every game situation. Unfortunately, that doesn’t tell the manager if the hitter is going to actually get a hit this time.
In sourcing knowing trends in key items is vital to success.
- The more volatile the item the more you need to know so you can manage the risk confidently.
- Trends can help you spot spend creep which is one issue that keeps CPOs up at night.
- Rogue spend is likely to stand out with the right trend reporting.
There are many more ways that trend information can benefit the procurement group and the company.
Why are professional baseball teams spending so much money to gather more and more statistics?
It is a long term strategy to gain a better understanding of the dynamics of the game at the base level.
It is a very long season in baseball with plenty of ups and downs. Many times winning just one or two more games can mean making the playoffs or missing them. A manager that understands the probability of success in a situation will help the team win a few more times each season.
Isn’t that what we should be doing in procurement? Shouldn’t we be looking for ways to improve our competitive advantage now and in the long run?
The right information will give you the ability to take advantage of trends and opportunities to positively impact the bottom line.
These issues are relevant regardless of the size of your organization.
Action Step: If this issue hits home a procurement professional like myself can provide guidance and expertise on how you can do this in your company. If you want to go explore this topic in greater detail, please reach out.
EC Sourcing Group is one of the companies I represent because their tools have been created by dedicated and experienced sourcing professionals. They know the day-to-day challenges your team faces and have built their tools to solve them. 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 973-936-9672.
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