The Key to Cost Reduction? Capture the Flag! Part I

Procurement is in vogue, but only because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

But do they deserve that money? Maybe, maybe not. It all comes down to the ROI delivered. Much of the technology out there is capable of delivering a good, if not great, ROI in the right circumstance when properly applied, but this is the kicker. Right circumstance, properly applied.

An e-Auction won’t save a penny applied to a category for the third time in a supplier’s market during inflationary times. In fact, it will likely result in a cost increase. An RFX will do nothing if the perceived value thereof in the recipient suppliers is not worth the cost of response. An optimization will do nothing if there is not enough data or the model is not properly constructed. An e-Catalog will be useless if the contracted product is not contained at the right price. And so on.

Moreover, the proper application of each technology product purchased requires the proper data. RFXs need appropriate supplier contract data to be delivered, proper questionnaires to collect the data, and proper cost models to collect the data, the application will never be properly applied. This goes double for optimization.

But this is only the start of the data debacle in many organizations that prevent procurement pursuits from delivering the sought after savings. Bad data doesn’t just stagnate sourcing, it also prevents proper procurement. Sourcing only singles out the savings opportunities, which should be negotiated and put into a contract, it doesn’t realize them. That’s the job of Procurement.

And that’s where you have to capture the flag!

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