How Procurement Professionals Can Add Value to Business Performance: Intelligent Cost-Reduction Strategies

We are pleased to bring you the fourth post in a series looking at how procurement professionals can add value to business performance, from Gerard Chick, chief knowledge officer, Optimum Procurement GroupIn this post he looks at intelligent cost-reduction strategies.

 

Cost reduction is often considered to be the number-one responsibility that procurement professionals deliver to the business – far ahead of enterprise growth and product or service innovation. Improvements in productivity and efficiencies are often realised following an intense focus on costs.

However, new commercially focused demands are rocking this traditional area of procurement strength. Globalisation has proven to be more about revenue growth than cost savings. Spend management is shrinking and the focus is now on profits. Today, CEOs might well ask the question, “How much might that price cost the business?” Procurement leaders will have to be able to provide the answer.

Today, managing costs is about moving more quickly towards agile supply chains which allows for rapid response to changing market conditions and variable cost structures that ramp up and down with revenues. Flexibility is their antidote for cost volatility and to improve the organisation’s cost structure and bring growth.

The future of supply management will be inherently flexible. It will be composed of an interconnected network of suppliers, manufacturers and service providers that can be tapped on demand as conditions change. To leverage resources optimally, supply managers in the future will employ intelligent modelling capabilities; using these modelling techniques will allow them to see the cost, service level, time and quality impacts of the alternatives being considered.

In order to ensure your organisation’s cost-reduction strategies are on track, there are a number of key questions to ask:

  1. Is your supply chain design flexible enough to keep costs aligned with revenue?
  2. Can your business adequately address rising cost volatility with your current contingency planning capabilities?
  3. Are your partners and stakeholders interconnected and aligned to provide efficiencies throughout the network?
  4. Do you have sustainability strategies and procedures in place to manage fluctuating energy or raw material costs?

In the next and final post in this series, Gerard Chick will be talking about the importance of embracing change.

 

 

First Voice

  1. Omar Khan:

    Procurement often fails to create value for the enterprise when purchasers decide to allocate the business to suppliers mainly based on lower unit prices. Procurement professionals tend to forget that the cheapest suppliers are not necessarily the most efficient suppliers. Cost reduction is important but not at the cost of supply chain interruption at the hands of sub-par suppliers.

    Suppliers who demonstrate operational efficiencies, cost control capabilities and have robust risk mitigation plans in place, should be rewarded with generous shares of procurement business. By using techniques like spend analysis and demand aggregation, procurement professionals can achieve not only the best prices but will also optimize the supply base. That’s what creates value for the enterprise.

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