First things first. The findings of a recent Source One Management Services survey (summarized in Part I of a 4-part series on how Companies Face Limited Procurement Resources, available on their website) indicate that 1 of 3 Procurement departments is understaffed. Ouch! With costs climbing and GDP growth (and, thus, consumer spending) flattening, this is not a good thing. For many companies, their only option for growth is cost control and value generation through Supply Management. (Note that we are claiming cost control and not cost savings because, now that inflation is back with a vengeance, with hyper-inflation lurking around the corner, there is no such thing as cost savings, just cost control.)
So what does this mean?
- You’re not doing enough analysis.
Analysis takes time. More time than just dumping your AP and P-Card databases into a spend analysis tool and running the canned top-n spend reports by supplier, category, department, etc. As per our recent post on Spend Analysis – How Do You Get It Right, real savings comes from real insight which requires real analysis, which takes time, effort, and focus.
- You’re not sourcing enough categories.
If you’re short-staffed, you’re going to focus on the top n suppliers, categories, departments, etc. spit out by the canned reports from your spend analysis reporting tool. Some of these will have opportunities, but since you’ll already know most of these opportunities, you’ll miss many of your biggest opportunities, which are typically found in the high-opportunity tier-2 categories that never get addressed due to lack of resources.
- You’re not finding new sources of value.
The future of Supply Management, in an inflationary economy, is value-generation. Cost control is a good start, and in an organization overspending by 5% to 15%, it will make a big impact in the beginning. But once all of the fat is trimmed, the best you can do is reign in costs. This means that the next round of savings is going to come from identifying value-generation opportunities. Bundling and unbundling the right value added services for your organization; helping engineering identify more cost-effective alternate materials and production processes that are also more environmentally friendly, and may let you charge a sustainability premium; and identifying new market opportunities based on products and services your strategic suppliers could provide you with can all bring value to your organization.
Now what? We’ll address that in Part II.