Webinar Notes: Calculating and Driving Sourcing Savings to the Bottom Line
In this week’s featured event we heard from the Sourcing Interests Group Thought Leaders Council. They offered their definitions of savings as well as best practices. If you are interested in more about the members of the Council, read the SIG page about them in the Resource Center.
The Thought Leaders Council advises SIG on the build-out of the SIG Resource Center, makes regular contributions, serves as subject matter experts, and conducts working groups. The Council is representative of the SIG Membership, in that the majority of members are sourcing executives from the Buy-side. The Working Groups take suggestions from the SIG community and build guidelines for sourcing initiatives and categories.
When you read a title like the one this webinar has, and read the titles and qualifications of the panelists, you might think that you are going to get a silver bullet answer to the challenges you have around savings in your own organization. The fact of the matter is, you have to negotiate savings, realize savings, track savings, and then have those savings materially affect the bottom line – either because they were removed from the budget or because they were deliberately reinvested.
While there is no easy answer, each of the panelists on the call reinforced the idea that we need to keep doing the things we are already doing – but get better, and faster, and more structured about it. For example, there is a finite list of types of savings (think rate based v. volume based, v. rebates) that your organization is willing to recognize. Articulate that list, and define the calculation and tracking methods that will be used. Get finance/accounting involved for the definition and keep them involved as you need validation on a project by project basis.
The advice from the Council spanned the entire procurement life cycle from planning to contracts. Some of the best points included:
- Procurement’s strategic planning should be done off cycle from the business’ planning or budgetary cycle. Get involved before the plans and budgets are established for the coming year, ideally giving input and staying involved to turn those opportunities into sourcing projects.
- Keep your savings calculations as simple as possible. Remember that finance is evaluated on variances from forecasts. While procurement may be excited by a project that promises significant savings, until those savings are seen, finance will be left in a defensive position, trying to maintain stability and predictability.
- When you are looking to address demand, look at ‘discretionary’ spend categories like travel, personal IT device and services spend, and magazines. Remember that specifications can be altered as well as volume and price to decrease costs.
- Think of contracts as an opportunity to secure your negotiated savings. Include clauses that indicate you are buying a solution to a problem, not just the letter of what you have specified in the bid process. This reduces the number of change orders required when putting a new provider in place. Get the supplier to agree to a statement about no hidden costs or charges, and tie payment to performance or delivery.
If you do have the opportunity to view the webinar on demand (or if you attended live) my final piece of advice is to print slides 11 and 12 and start carrying them to your meetings with executives or internal stakeholders. Having a framework on hand that walks through the types of savings opportunities (more traditional as well as ‘other considerations’) will help you outline the ways you can help manage their spend and may give them new ideas as well.