Hitting the Spend Management Wall — and Getting Over It

Last week, I had the chance to speak at a vendor's sourcing user group about what to do when an organization has hit the savings wall and is looking for ways to accelerate its sourcing-driven Spend Management programs. Even though the companies in attendance represented a good cross section of adoption -- ranging from innovative sourcing leaders to what I would best describe as late majority organization on the Geoffrey Moore curve -- I assumed a basic level of maturity and adoption in my pitch.

In setting the stage, I told the group that my discussion and suggestions were intended for companies that had already deployed category management and category-based sourcing approaches, as well as technology to enable such initiatives (e.g., multi-round sealed bids, reverse auctions, optimization, etc.). I also assumed that the group had already gone through a number of strategic sourcing process approaches and strategies such as classic five/seven/nine (pick your flavor) sourcing models, supplier rationalization programs, and other types of classical cost savings initiatives (e.g., payment term standardization).

In addition, the presentation was intended for those who were already deeply involved in global sourcing efforts and had selectively used "full service" third parties -- e.g., FreeMarkets, AT Kearney -- at some point in their past on a targeted basis. In other words, these were all sophisticated organizations who had done the right things to date.

But what was causing their programs to slow down? One main reason is that many attendees were continuing along the lines of going after the same low-hanging fruit sourcing strategies that they had carried out for years (and the trees were bare). Others were frustrated at the rate of adoption of sourcing processes and tools outside of their immediate centralized function or organization (e.g., at the tactical buying level). But virtually everyone thought they could do a better job at marketing the role and power of an advanced Spend Management approach inside their company.

In addition to discussing how to get past these hurdles, I tossed out a "top ten" list of additional elements that I have found can help accelerate programs that are beginning to run out of steam. Please note that these are not all of my ideas -- just observations from end-users and other experts alike on program elements that can help an other organization to get results. These are:

1. Understanding how the intersection of Lean / Six Sigma and strategic sourcing can work together to drive enhanced savings

2. Targeting previously untouched services spend categories aggressively with focused approaches

3. Considering how best to tackle more complex direct materials categories leveraging new technologies that bridge the design / sourcing gap

4. Imbedding process in technology to reach a larger potential user base than before (and the frontlines of the business)

5. Budgeting for and launching an aggressive internal marketing campaign to drive visibility and excitement around sourcing initiatives

6. Moving to monthly refreshes for spend visibility (and for those companies who do not have a spend visibility tool, buying one immediately)

7. Taking a total cost perspective on implemented savings -- create new incentives to measure implemented savings vs. identified or contracted savings

8. Outsourcing (or work with third parties) for what is non-core

9. Partnering with strategic suppliers for more than unit cost reduction

10. Thinking globally, acting globally

For Spend Matters readers, these pieces of advice on how to get past the savings wall should come as no surprise. They are constant themes on this blog -- many of which we will continue to explore in more detail in the future. And obviously, the devil is in the details (and the explanation of each). So don't take them out of context, but feel free to adopt them as your own if you're looking at suggestions for getting over the savings wall. And give me a ring or drop a line if you'd like to discuss or flesh any out.

Jason Busch

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