Implementing Procurement Efficiency / Cost Reduction Programmes – Specification Management

As we said here, we are in a period of considerable economic and political uncertainty for many businesses and indeed public sector organisations too. Uncertainty can be good if it leads to positive outcomes, but we suspect many organisations will be taking a cautious approach to planning and risk management. They may also be asking procurement functions to look at how an efficiency or cost reduction programme can be implemented.

We are big supporters of procurement playing a strategic role and helping to drive growth and revenue; but at times, our focus will inevitably be on those cost issues. So how can procurement deliver benefits, without resorting to the rarely effective (and frankly embarrassing) approach of “asking all our suppliers to reduce their prices by 5%”.

There are, when it comes down to it, only a relatively small number of ways in which the end goal of cost reduction can be achieved. We’re open to discussion here and being proved wrong, but we described six here in the first article in this series which we think pretty much covers it. Today, we will talk about the second in our list of six - Specification Management.

In its basic sense, that means making sure what you buy is fit for purpose and meets the needs of the organisation and budget holding managers, but also maximises value for money. That does not necessairly mean buying the cheapest option - it might in some category spend areas, but it does not for many. Buying the cheapest consulting firm or marketing agency is unlikely to do much for value! However, it is appropriate for procurement to challenge the stated need and make sure that it is not the proverbial "gold plated" option that's being purchased.

Here are some tips for driving better performance in this area.

  • Ensure all major purchases do have a clear specification and where possible it is expressed in output or outcome terms rather than inputs or technical specifications.
  • Avoid branded specifications in particular - or specifications that narrow down the options so much they effectively allow only one or two suppliers to compete realistically.
  • Question specifications that appear to contain "nice to haves" rather than essentials. At the very least, try and establish how much these options cost, and question with the budget holder whether this really represents value. It is easy to over-specify in many categories, from cleaning services to IT equipment to contingent labour.
  • Update specification regularly, and challenge internal users and budget holders (and indeed suppliers) to make sure they are current and appropriate. Look for developments (e.g. in technology) that mean a different specification or indeed different product is now better value.
  • Wherever possible, harmonise specifications as widely as possible within and across your organisation to increase buying power - this also reduces the cost of complexity for you and your suppliers.
  • Policy changes can combine elements or demand and specification management. For instance, some organisations have found that tightening up on travel policy (no first class travel, three start hotels only) reduces the cost per travel event (specification management) and makes staff think harder about whether to travel at all rather than using other means (demand management / reduction).

To get the most from specification management, procurement professionals need to be adept at building relationships with internal stakeholders. Being able to challenge and have frank discussions, without alienating the budget holder or user, requires good communication skills and a robust but empathetic approach. But, just like demand management, the potential benefits and savings in many spend categories from managing specifications effectively can far outweigh the basic "leverage" approaches that we more often see.

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