The event had an interesting format - four speakers, same topic: quick savings wins. While all of the speakers were qualified, two set themselves aside by taking on the harsh realities of trying to increase savings for the year with only a sort time left to go.
Second Speaker: Larry Beard, Tate & Lyle
Larry had my attention immediately by acknowledging that there are only four months left in the calendar year – which requires tactical, simplistic approaches if they are going to work fast enough. He introduced his four savings levers and how they might be applied under the current time constraint: Price, Specifications, Process, and Volume.
- If you have a supplier contract that will expire early in 2012, approach the supplier to see if they will offer you any savings to extend the deal for a year before it even expires.
- Check your top suppliers by spend this year versus last year, and approach any that you see a significant uptick in business with (BTW: you also probably want to ‘dodge’ those suppliers where your spend is significantly DOWN year over year. Keep track of any rebates you have earned and chase down suppliers until they are paid.
- Target low complexity categories with auctions, such as copier paper, toner cartridges, etc.
- As you meet with teams, make sure you help separate their wants from their needs.
- Consider private label products when possible.
- With services, see if you can decrease the frequency of their visits without harming their performance: cut contractors down to 4 days a week instead of 5, or space out the visits from cleaning staff a bit.
- Present a challenge to your suppliers to help you identify ways to save 10% immediately. Incidentally, this is a much healthier use of the ‘contest’ model being looked at this week on the ‘Procurement Insights’ blog.
- Expand your use of P-cards in order to generate a larger rebate at the end of the year.
- Introduce a ‘choke’ (as long as you can get CFO support) that automatically challenges purchases over a certain size in order to discourage spending.
- Focus attention on office energy costs (switch to conservation mode). Reduce the amount of safety stocks in your inventory - carefully of course.
Last Speaker: Ian Russell, South African Breweries
Similar to Mr. Beard, Ian Russell took a very practical, realistic approach. He started his slides with the following scenario:
The CEO has called the CFO…
The CFO has called you…
The CFO says that whilst the Board are mildly interested in your strategic sourcing strategies, they’re much more focused on what you can do in the last 6 months of this financial year…
Okay – Mr. Russell gets it too. And he further made his point by articulating the common scenario that procurement usually spends the first half of the year kicking off big strategic projects. The second half of the year tends to be taken over by the need to help the company keep its commitments to the Board and shareholders. Despite the strategic experience and qualifications of most procurement professionals, the reality of the situation means that we spend a significant portion of our time tactically managing costs. He offered up three savings levers of his own: Demand Management, Supplier Leverage, and Financial Engineering.
Simply put, the goal here is to stop any spending that hasn’t happened yet. It’s not the best way to make friends internally, even if you do focus on discretionary, back office spend. Be careful to avoid revenue generating spend, or investments in the future growth of the company. The best approach is to look at horizontals v. verticals: travel for instance. Look at the burn rate for each budget center this year versus last year to see where increases have taken place and focus attention on them. Make finance your best friend.
As Mr. Russell pointed out, if you are going to be disliked internally, why not go for broke and make sure your suppliers dislike you as well? Do what you can to reassign procurement resources to speed up internal activity that has promise to deliver in the current year. But no matter what approach you decide upon, maintain your individual and departmental integrity at all costs. If possible, defer expenditures, but do so within whatever regulations apply to your company. Work with your suppliers to understand substitution options for demand (B&W versus color copies).
This was by far the most complex of the suggestions, would require full cooperation with finance, and once again needs to work within the accounting regulations that apply in the country where your company is based. Make sure you are working with the right depreciation schedules to have the correct baseline for category spend. When possible, capitalize infrastructure projects to lessen the opex impact of the spend (like the accounting equivalent of buying versus leasing a car). If possible move maintenance agreements/fees/work into the next fiscal period.
Your approach should have the secondary benefit of improving the role of procurement within the company, developing better working relationships with finance and other groups, increasing your negotiating leverage with suppliers, and building your knowledge and understanding of the business as a whole.