Debunking the ‘Latte Factor’: It’s Not What You Buy, It’s How You Buy It

TV personalities Oprah Winfrey and Suze Orman suggest we should deny ourselves simple pleasures like that daily $4 Starbucks latte in an effort to save money, and we've seen this view spill over into the corporate arena as well. More and more organizations are being told they if they tighten controls and reduce corporate "lattes," they will drop at least 1% from OPEX.

Although it seems like sage advice, Ramit Sethi, author of the New York Times best-seller I will Teach You to be Rich, cautions against fretting over a $4 coffee: "Constantly over-analyzing tiny purchases is exhausting and ineffectual." He sounds more like the supply chain professional who focuses more on value than per-unit-cost!

You may be surprised that one of his suggested solutions is financial automation -- because it enables smarter spend management rather than controlling every little purchase.

I hope corporate America is tuning in to Ramit and tuning out Oprah and Suze. An investment in a robust and flexible purchase-to-pay system can help organizations get away from squeezing nickels and dimes to saving real dollars by using more global, enterprise-wide spend management strategies. Three big keys:

  1. Buy at the places where you've earned discounts. If your local coffee shop gave you a 20% discount on every cup, would you buy anywhere else? Unfortunately, it's often because your requisitioners think it's inconvenient. Sticking with your preferred suppliers is the best way to reduce costs and encourage compliance by making it convenient: create a universal online catalog of your preferred suppliers. Within the catalog, optimize the search capabilities so your requisitioners are first presented the items within a category you want them to buy. Then use the system's matching capabilities to ensure your suppliers are billing you the agreed-upon price.
  2. Use what you have before buying new. Why would you head out to a steakhouse if you have filet mignon in the freezer? Probably because you didn't know you had it. Some companies are optimizing searches to present users with idle assets and excess inventory before they can procure new goods. Managing and focusing demand in this manner is much more cost effective than skipping a latte.
  3. Don't spend more than you have. I think Oprah and Suze are really just trying to prevent overspending: it's easy to do, especially when not all spenders can see how much is left in the till. The budgeting capabilities of some procurement systems provide real-time budget information across the enterprise, allowing managers see accurate budget numbers before approving PO requests -- all from a computer or smart phone. "Latte" alerts can even be setup that trigger when a budget gets below a certain amount.

The bottom line is that it's not really what you buy, it's how you buy it. It's not the fact that Bob in human resources orders sticky notes, it's the fact that accounting next door has 100 packs in the closet and Bob goes out and pays 30% more than he has to. Paying attention to small details such as this is how you can really knock costs down!

I have to admit that Oprah does have more money than Ramit, but does that mean we should always listen to her? I'll let you decide. In the meantime, I'm going to get myself a latte. Don't worry, I have a loyalty card -- and every fifth cup is free!

- Mark Schaffner

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