Supply Chain Optimization Meets Spend Management

For many companies, the word "consultant" conjures up an unsettling image. That's because today's consultants have earned a negative reputation for excessive fees, lengthy analyses and cumbersome recommendations.

Traditional consultants tend to work under a guaranteed fee structure, rather than a performance-based fee structure. In many cases, these consultants require the company to provide additional bandwidth to manage the scope of the project, which presents another layer of cost. Furthermore, consultants -- especially those that specialize in the supply chain -- are renowned for delivering impressive recommendations without seeing those recommendations through to implementation. Lastly, the time to savings for the average consulting project is long. The engagement itself and recommendations are time-intensive, which pushes any prospect of savings further down the road.

Because of this, the role of the traditional supply chain consultant is changing. Today's supply chain organizations are turning to niche experts that know how to drive their value throughout the entire supply chain, and focus on providing strategic changes that can be made swiftly, with immediate impact and without risk.

The Case for Value Added Services in Spend Management

There has been an increase in the number of transportation spend management consultancies over the past five years. Why? Because transportation costs represent a major part of the operating budgets of today's manufacturing, distributor, retail and supply organizations. These costs, which are highly susceptible to economic and fuel price volatility, have a direct impact on profitability.

But, most spend management consultants deliver value only at the carrier negotiation phase of supply chain strategy. At best, they have the pricing visibility to determine fair market value rates for carrier and 3PL services, and the ability to audit invoices, but the value ends there. That's why many of today's spend management consultants are appropriately referred to as "negotiators" and "auditors."

Carrier negotiation and auditing is only a piece of the supply chain spend optimization puzzle. To optimize and manage spend throughout the supply chain, companies must work hand in hand with their spend management advisors to understand every instance where the carrier intersects with the supply chain. How will goods be shipped inbound to distribution centers? How efficient is the geographic mix of distribution centers and warehouses? What does the storage plan look like? What is the most cost-effective mix of carrier services for outbound shipping? How are customers helping recoup shipping costs?

These areas all represent major cost savings potential. Overlooking any aspect is a savings opportunity lost -- yet, the majority of today's spend management consultants and logistics professionals fail to drive spend management rigor this deep into the supply chain. Carrier spend management must go far beyond contract negotiations to reach its full potential. It has to be integrated throughout the contract and handled as a process -- not a one-time event.

For that reason, companies would be remiss to partner with logistics advisors that don't understand the comprehensive impact of carrier management throughout the supply chain. Cost savings opportunities -- and pitfalls -- are littered across the supply chain continuum, from RFP and negotiations to the way goods are moved inbound and outbound. To truly optimize spend management and supply chain operations, spend management expertise is needed at every level of carrier management.

-- NPI Financial

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