Although you may be inclined to say “yes”, or “why wouldn’t I be”, you might be surprised that for a lot of companies getting savings through the door is a lot harder than they thought. Is not that savings aren’t possible or that the marketplace isn’t yielding enough value, it is also not a problem with any specific categories, albeit cost reductions on some categories is a lot more complicated than others, the true issue lies within the organization itself, in that the internal structure may not be ripe to support a comprehensive cost reduction “seek and implement” initiative.
Generally speaking, finding savings across categories is not that hard, depending on the category (communications, marketing, MRO, logistics, etc.) and nature of spend (direct or indirect), a company may use a variety of strategies to optimize costs, typically by conducting strategic sourcing events, benchmarking exercises, engaging with GPOs or simply by negotiating directly with incumbent suppliers, all viable mechanisms to find real savings; however issues typically start with implementation.
Conducting an isolated event (whether that is full sourcing or three bids and a buy) will likely not uncover the deep issues or limitations of the organization as one single event may be accommodated with limited frustration by the different departments that would support it (e.g. legal is an entity that would be involved if a contract must be executed so one more contract may not impact their pipeline too drastically). However, the really ambitious savings initiatives are those conducted at the corporate level and tend to involve multiple businesses to seek and generate a tangible impact to the bottom line of the company.
This is where companies in pursuit of increasing the value of the company within a year chase aggressive savings targets and request their procurement organization to orchestrate and coordinate efforts across the company to meet them. The problem is Procurement - as well as the rest of the company - may not have the resources, capacity, process, tools or knowledge to 1) identify savings across the board and more importantly 2) effectively implement them. The answer, before pursuing an inclusive savings initiative, a maturity assessment of the procurement organization should be conducted.
Not long ago, our company was engaged to source a multitude of categories and support the implementation of identified savings across all their business units, long story short, not long after our initial data collection had stared we realized the company had deep deficiencies across functional departments, and their procurement organization wasn’t set up adequately to support the ask. We made a series of transformative recommendations and highlighted multiple risks that would impede savings from being realized, nevertheless, we were asked to proceed with our processes and sourcing strategies and reassured that the company would support as much as needed to see savings realized. It wasn’t long after that an overburdened procurement team and an overwhelmed legal department realized that millions of dollars of identified savings were not going to be implemented on time. Needless to say, we repurposed our efforts and executed on our procurement transformation recommendations in order to enable procurement for a much more successful second round.
The lesson: a good fighter may very well win a one-on-one combat, but there are many problems with going to a major battle without bringing the right weaponry. The same happens with executing on ambitions sourcing efforts without knowing the true capabilities of the organization, risks such as alienating the supplier base, losing savings momentum, overburdening functional departments and angering stakeholders may have long-term repercussions for the business, let alone missing on the initial objective, which beyond getting savings is about value generation. Next time your company decides to embark on an ambitions cost reduction adventure, think about whether the organization is trained and ready to sail those waters.