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With apologies to our good friend Barb Ardell (formerly GE and Procuri, now Paladin), whose title was accidentally usurped, we announce our latest Spend Matters sourcing-focused Compass Paper: Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation. This analysis provides best practice techniques, technologies and general approaches that are designed to help procurement teams work with both finance and business stakeholders to set up and manage implementation of savings programs. In it, we highlight examples of how savings implementations can go wrong to educate readers about common missteps to avoid.
To make sourcing savings stick, procurement organizations in the initial stages of a transformation program tend to prioritize implementation only after they carry out a strategic sourcing program. Yet Spend Matters' experience suggests that superior sourcing programs are actually those that consider the ability to implement savings as early in the process as possible, even before categories, negotiations and supplier selection take place. There are many reasons behind this, plus some common pitfalls that we observe time and time again in making hard-fought sourcing savings stick.
The paper draws content from two previously published pieces -- Realizing Value--Implementing Savings in a Global Market, a no longer available (online or in print) paper that was researched and written 10 years ago by Jason Busch, David Jungling, and Jay Odell, who were all at FreeMarkets at the time. Their analysis, in an updated form, is particularly germane for direct spends in manufacturing organizations. The second source comes courtesy of Archstone Consulting, a company that has graciously authorized us to reuse content from their recently published piece (on Spend Matters). Their analysis is insightful for all types of organizations and spend categories -- including indirect and services spend.
The paper includes benchmarking data to help organizations build the business case to invest in savings implementation programs. We note, for example, that a significant division between top performers and low performers in the area of savings implementation exists. For example, high-performing companies were far more likely to award to the low bidder than low-performing companies. For every $100 dollars in awarded business, top performers allocated 97% to the lowest-price supplier, while bottom-performers only awarded 74% to the lowest-price supplier, implying that top performers had processes and resources in place to better handle the challenges posed by implementing new, global suppliers.
Further, top performers were also far more likely to realize identified savings from strategic sourcing activity. The top quartile was able to implement nearly 90% of identified savings from sourcing efforts. In most cases, however, bottom performers were unable to implement t?the majority of identified savings. Of these bottom performers, only 25% had standardized, formal implementation processes in place. At the time of this analysis, the research findings suggested that increasing the savings implementation rate by only a few percentage points could have tremendous, bottom-line impact. This observation holds true today.
If you're missing out on any potential implemented savings from sourcing efforts, you can't afford to miss this analysis. Download Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation in our "freemium" research library today.