Rogue spend can tell you some things about your organization you may not have realized.
Finding out may be painful as it may indicate shortcomings in procurement performance.
Here are some of the issues I have been told to “justify” rogue spend:
- Frequent quality issues
- A decrease in on time delivery
- Product shortages
- Response time in dealing with product or service issues
- Hidden or unexplained price differences versus negotiated rates
- Inconsistent delivery in certain geographic regions
- Inconsistent delivery or supply leading to production or service delivery issues
- Delivery overages creating storage issues
All of these issues impact an organization’s ability to deliver to their customers.
Put yourself in the position of the manager having to deal with client complaints or explaining the loss of a key client due to these issues.
I recognize that procurement could have done a solid job in vetting the supplier and the supplier just hasn’t lived up to their promises.
However, it is a bit more likely that procurement may be:
- Lacking the information necessary to do their job
- Working with antiquated purchasing and financial systems
- Under constant pressure to “drive down costs”
- Or any of a number of other reasons that make doing the right job nearly impossible
If any of these issues sound familiar, then you need to develop a strategy to tackle the problems starting with the ones that will impact the bottom line the most.
Who doesn’t like a great price? I am always wary of a great price or at least one that is “out of bounds”.
Everyone is in business to make money and if you have been squeezing your suppliers and service providers trying to reach the bottom you probably want to take a step back.
A client of mine just rejected a bid that was 6% below the next lowest bid. The savings they passed on would have doubled their savings on this purchase.
They had tested the device and were not convinced that it would hold up under conditions. They knew from past experience that if the devices had operational issues that the negotiated savings would vanish quickly.
There are plenty of spend categories that can tolerate quality problems because they don’t directly impact the production of goods or the delivery of services. In those categories you can be more aggressive especially if the product or service is widely available.
I would recommend a different approach for products or services that can impact the organization’s ability to service or supply their clients. Disruption is costly.
In those situations, a more strategic collaboration with the supplier is necessary to insure your organization can consistently deliver for your clients. That is a topic for another day.
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 identify the problems and change them for the better. 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) 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.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life