Quick Hit Cost Savings Projects

Since it’s impossible to get away from cost reduction, inspired by a recent SIG article on “Strategic Cost Management: The Survivor’s Playbook to Savings”, which listed the following high-impact projects for same year savings:

  • Software Maintenance-Rate Reduction
    Identify all of the maintenance contracts, annual spend, and maintenance percentages. Develop a standard maintenance agreement and standard percentage for annual maintenance, require an exception appoval process with senior management involvement for any alterations, and focus (re)negotiations on highest savings opportunities. Savings of 5%+ is not uncommon.
  • Software Maintenance-Elimination
    Eliminate maintenance on all non-critical systems or all systems where annual maintenance cost is low. (In the latter case, even if the system is critical, it will cost less to re-instate the maintenance on a system at a later time if it is required than to pay maintenance on all such systems.)
  • Legal Services-Hourly Rate Reduction
    Most legal firms raise costs annually regardless of competitive market conditions. (Threaten to) conduct a sourcing exercise and watch rates drop quickly.
  • Legal Services-Bundles and AFAs (Alternate Fee Arrangements)
    For general legal services that are project or task oriented, and not litigation oriented, bundles or AFAs can save the company a significant amount of money.
  • Desktop Printers-Elimination
    Shared multi-function devices, with password printing, are much cheaper to operate than individual desktop printers.

here are a few more quick-hit cost savings projects that will generate cost savings if the organization has not run them (recently):

  • Marketing-Print
    Unbundle print from creative services and then run a quick sourcing project. Significant cost reductions in the 10% to 20% range (or more) will quickly materialize when printers are being faced off against each other.
  • Office Supplies-Live SKU Guarantees & Price Checks
    Everyone knows that a quick auction will drop prices across the board, but most category experts also know that the vendors make this back by raising prices a few months down the road when they think no one is looking and by bidding expiring SKUs, which will be substituted with higher price items down the road. Insisting on a clause that states that all SKUs must not be schduled to reach end of life within the contract term, and that any SKU that is retired must be replaced with a SKU of equivalent, or greater, functionality at current, or reduced, cost will prevent those overpayments and insure that significantly greater savings materialize.
  • Computers-Overpayment Recovery
    Most vendors don’t honor the “best price” clause and generally charge the same rate for the life of the contract, even though most computers and components decrease 2% to 3% a month. A careful spend audit will typically reveal 10% or more in overpayments that can be targetted quickly.

Elements of Leadership

A recent post over on ChiefExecutive.net on The Four Elements of Leadership had four great tips for helping you manage your top talent. In brief, they were:

  • Understand Your Role
    You’re a leader, not a manager. As a result, you direct, you don’t control.
  • Unify the Team
    Don’t divide the team, don’t add members that will divide the team, and if the team begins to divide, align them against you if need be (on a temporary basis).
  • Deference is for Managers
    If you get too accustomed to having people defer to you, you stop growing as a leader. The team should be empowered to make their own decisions, should know that you’re not the only expert, and should know that you don’t have all the answers and don’t expect that you do.
  • Deal with Differences
    Learn how to identify them, respect them, use them appropriately, and find a common language when not everyone thinks the same.

In other words, leaders lead, they don’t micromanage; they build a team, they don’t just put bodies in seats; they empower the team and acknolwledge their own limitations, they don’t see themselves as superior; and they understand.

It’s a good article with good advice.

Every Supply Management Vendor Should Review Their Strategy, Not Just Ariba

There was an interesting article over on Fast Company recently that described three steps for re-evaluating your company’s strategy. To illustrate why a company might need to reevaluate, the article chronicled Ariba’s rise, fall, and their recent 300% growth in their stock price over the last year.

According to the article, Ariba, which has a Supplier Network with over 500,000 participants that conducts 170B in transactions a year, had to change their model and refocus when their stock crashed from over $700 a share to $10 in a matter of months. This included opening up their network and switching to SaaS. Furthermore, according to the article, this change was the result of learning the following three strategic lessons:

  1. Don’t Confuse Missed Timing with Missed Vision
    Often the vision is right but ahead of its time.
  2. Look for the Rise in the Fall
    When a company is forced to revisit its strategy, it may find an opportunity it overlooked.
  3. Build the Snowball
    Find a solution that will draw in customers that will in turn draw in more customers.

While the lessons are important for Ariba, if Ariba has truly learned them (as I believe they could have done, and could still do, better than they have done with respect to lessons two and three), they are equally important for Ariba’s competitors. And, as the article points out, Ariba’s competitors have to ask the following questions:

  • If it ends up taking three times as long to achieve our vision, what would we do differently today?
    While some would argue the Supply Chain space is dead, only the leaders have adopted modern solutions, and the laggards are still struggling to get past a spreadsheet to an outdated ERP.
  • If our core business fails, how else could we profit from the assets and activities of our business?
    Sometimes it’s the right vision, but the wrong implementation. Sometimes an idea belongs in the consumer space. Sometimes the add-on becomes the application. And sometimes its just a different deployment model. The original business plan is just the starting point.
  • What is the kernal of our snowball?
    It’s all about making it almost viral.

If they do, many will be in a better position than they are today.

The Emerging Focus on Talent, Part IV

Now that the importance of talent to a Supply Management organization’s success is well understood, an organization needs to know how to get started on its talent management journey.
Based on the collective insights on talent management brought to you by SI over the years, which includes some great insights from the recent Hackett Group Best Practices conference, some key starting points are:

  1. Admit You Have a Talent Management Problem
    Even if the organization is world-class and has a team filled with extremely talented individuals, it still has a problem. First of all, its top talent is being recruited daily and eventually one of its competitors is going to make an offer that each of its top X talented individuals are not going to be able to refuse. Then it will have to deal with the fact that the only pool of talented resources out there with the education, experience, and expertise needed are already employed by competitors. So even if the organization doesn’t have a problem today, it will tomorrow.
  2. Make Supply Management Attractive
    If you want raw talent to choose Supply Managemnt as a career path, it has to be attractive. If Marketing or Finance or Legal gets all the glory, that’s where the talent will go.
  3. Put a Hire-to-Retire Plan in Place
    Not only does raw talent have to see Supply Management as an exciting career option, raw talent has to see Supply Management as an exciting career option in your company with a well defined, long-term, growth plan that can lead all the way to the C-Suite.
  4. Make Cultural Diversity a Core Value
    Cummins, Disney, and HP understand the critical importance of a diverse team — your organization should too.
  5. Talent Comes First
    Great leadership is important, but team success is more important. Make sure leadership puts the good of the team and the success of their employees above their own. That’s how a world-class Supply Management organization is built.

And while this list of starting points certainly isn’t exhaustive by any stretch of the imagination, it will put the organization in the right mindset to formulate its talent acquisition, retention, management, advancement, and retirement strategy and ensure talent is put first in the H2R (Hire-to-Retire) strategy, which is much more than just another metric of a world-class organization.

Lessons Learned from Best-in-Class, Part VIII

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

35. The key to success is to change the score from cost to desired result (without losing cost control)
Procurement can no longer be an organization focussed on cost savings but must be focussed on results and value if it is to become a Next Level Supply Management organization. It’s only possible to take out so much cost. Eventually there is no fat left in the raw material buy, the manufacturing process, or the supplier’s margin and as costs rise with inflation, not only will savings stagnate, but costs will increase unless the organization has shifted to focussing on the end-to-end product and service lifecycle and the value that can be generated. If the goal is an affordably priced product with a great warranty and service, then maybe Procurement will have to find the savings in quality improvement (to minimize the defect rates and return costs) and service level improvements at the same cost point.

36. The Procurement roadmap must be milestone driven
The only way to keep Procurement truly focussed on results and value is to define milestones at a macro level, a category level, and a project level and keep the team working towards those goals. If the team is constantly focussed on meeting the milestone and the associated result, it will keep the team from slipping back into a cost focus, which is no longer a behavior that can be tolerated in a Procurement organization that wants to get to world class.

37. There is only ONE procurement team
Even if the organization is centre-led and there are individual teams scattered across the business units and geographies, and even if projects are managed at a category level, it must still be one unified Procurement team focussed on the overall goals of the business and the needs of its internal customers. For example, if logistics costs can be greatly reduced by syncing two different category buys, then the teams will work togehter to sync the buys and reduce the overall TCO and increase the value delivered. The team must speak with one voice in its requests for new systems and processes. And the team must speak with one voice when dealing with suppliers, or they will either not take Procurement seriously or try to sneak in a back door during negotiations.

38. Transition Management is Key
It is absolutely crucial that change management not be overlooked when a new supplier is being brought on board or an old supplier is being removed from the day to day Procurement equation. If change is not managed carefully, and planning not done sufficiently in advance, there can be significant disruptions as the new supplier is ramping up, especially if the old supplier decides to retaliate and delays orders or skips the quality check.

39. Use customer terminology
One of the quickest ways to gain respect when trying to get the support of the business units is to talk in their language. Engineering, Marketing, Legal, and Finance will be significantly more impressed if Procurements learn the language of design, of advertising, of contracts, and of finance, demonstrates that Procurement has done its homework, and makes an extra effort to show the business units that their success comes first.

This concludes our eight part series on lessons learned from best-in-class companies that were shared by some of the participants at this year’s Hackett Best Practices conference.