New Year, New Cost Reduction Initiative
Time for a new diet – get more for less in 2019
January provides an impetus for commercial planning, either to start a new calendar year or in preparation for the new financial year.
For many organisations, profit improvement will be top of the C-suite agenda. In simple terms there are two levers; increase revenue (and your profit improves by a factor of revenue multiplied by % profit margin) or decrease costs (and your profit improves directly by the value of the saving).
Procurement cost reduction provides a strategic lever to decrease costs without affecting staff (as the focus is on non-pay costs) or service quality.
The second point is key here; procurement is not about indiscriminate cost cutting, quality reduction or service impact. Excellent procurement will put in place the optimum supply and commercial arrangements often finding the most innovative suppliers, improved service, improved quality and lower costs.
Whilst revenue growth is important, cost reduction provides the largest and fastest impact and one that can be quantified, planned and executed through a structured approach to procurement cost reduction. In the current economic climate, a 2019 cost reduction initiative should be on every strategic plan.
Top down versus bottom-up
Generally, organisations plan budgetary forecasts in two ways; top-down or bottom-up.
In top-down, a target is set and imposed on the organisation. The results can be disappointing; lack of buy-in, zero sum activity with departments working against each other and missed targets.
The alternative, bottom-up planning, involves working out what is possible with functions, gaining buy-in to realistic objectives, discussing delivery routes and developing corporate teamworking.
It takes longer but the result is better.
For a procurement cost reduction initiative, bottom-up planning rather than top-down, is the difference between success - when procurement engages the business, and failure - when procurement operates in an isolated silo with little influence on the organisation.
Assessing the opportunity
An Opportunity Assessment helps you to identify, evaluate and quantify the potential for organisation-wide savings in bought-in goods and services expenditure.
This is an essential tool for optimising the effectiveness of any cost improvement programme, providing the in-depth insights required to prioritise opportunities for procurement savings as well as a plan for their delivery.
Our team of procurement specialists will categorise, analyse and benchmark all your bought-in goods and services spend data in order to accurately identify and prioritise opportunities for savings. We will also interview your procurement staff to assess current performance and highlight areas for improvement.
With this information, we’ll develop a business case, savings delivery plan and long-term procurement roadmap. The process is fast, is independent and will involve minimal business disruption. It will give you a clear picture of your procurement performance – and you’ll know exactly what savings can be made and the best way to deliver them.
Points to consider:
- Profit improvement should be top of the C-suite agenda in 2019
- Procurement cost reduction provides a strategic lever to decrease costs without affecting staff or quality
- Bottom-up cost reduction planning rather than top-down budget cuts is most effective
- Procura’s Opportunity Assessment helps you to identify, evaluate and quantify the potential for organisation-wide savings in bought-in goods and services expenditure
If you are planning your 2019 cost reduction initiative, call us. We can rapidly quantify the potential and provide a clear, actionable roadmap for delivery. And if you need delivery support, whether a programme of cost reduction, specialist category support or just on-demand, we can ensure your targets are delivered through to the P&L.