Do you want to save money?
I pose this question to you not in a rhetorical sense, aiming to spark some sort of deep reflection on the meaning of life and the futility of wealth; but literally: do you want to save money?
If so, you’re not alone.
Deloitte’s 2020 Chief Procurement Officer (CPO) Flash Survey, exploring Covid-19’s impact on procurement, clearly shows that ‘Cash is King’. (Tell us something we don’t know! But here’s their data anyway…) Over the next 12 months, 66 % of organisations are planning to pursue cost reduction strategies. Cost management is the greatest priority for CPOs right now, commanding eight times more focus in daily operations.
(Now for the depressing bit…) With the pandemic and associated economic downturn, organisations are managing extreme risk and supply continuity issues. Many believe that the full effects of the crisis have not even yet been felt, with 70 % planning for a long economic downturn (I warned you. But read on, I promise it gets better.)
Deloitte’s data paints a pretty bleak picture. Covid-19 has been the grey cloud hanging over our professional and personal lives now for far too long, but the skies are clearing. These findings clearly show us the urgency that exists for companies to tighten the purse strings. But how? What are these cost reduction strategies? Deloitte don’t tell us; they are an enigma. For consumers however, the answer is usually much clearer.
As I write this article’s first draft on the eve of Black Friday, internalising the array of marketing communications targeting me throughout the day, Deloitte’s survey resonated with me. I like to shop, so I am a buyer. But I also like to save money, therefore the goals of the CPOs are aligned with mine. What I have learnt since joining IDDEA, is that there are solutions to cost savings when you are a corporate buyer, they just aren’t as commonplace and overt as consumer solutions.
So, what are they?
Realised customer savings
Through my research, I have had insightful conversations and learning experiences with IDDEA’s customers.
Below are three insights that really opened my eyes to the value that strategic procurement can deliver:
- A construction company needed to increase margin while maintaining the market-leading quality of their homes. Our team delivered a procurement strategy, policies, governance model, and a performance dashboard, resulting in reduced costs, and a more robust supply chain.
- ROI: 14% Savings on a multimillion euro spend
- A large food retailer wanted to reduce the carbon footprint of their single-use plastics by 70% while avoiding cost increases. We analysed a €13 million spend, 1,200 suppliers, and 1,300 SKUs, with a focus on sustainability goals and cost reduction.
- ROI of €50 for every €1 invested
- A leading manufacturer of food ingredients needed to consolidate their waste disposal services. They leveraged the IDDEA full-service tender process, rationalised suppliers, and negotiated improved specifications and supplier performance.
- But I still haven’t clearly answered my own question…what exactly are these cost saving solutions?
- I have learnt that every aspect of strategic procurement can deliver value to an organisation. However, most impact and value are achieved when suppliers and buyers can align on ‘what good looks like’ from both perspectives; the vision is united, and the goals are shared. (See, I told you it got better! Read on, there’s more!)
- ROI €17 for every €1 invested, with 25% savings
Corporate cost savings solutions
In my experience, cost savings are most realised via optimised tender processes.
I’ve been fortunate to learn this from Ingrid (IDDEA CEO) and the team, who have executed over 1,000 full-service tender auctions, managing billions of euro in spend, and saving hundreds of millions in industries such as construction, retail, transport, and manufacturing. Good tender practices deliver real cost-savings for companies – but equally important, support suppliers too. Helping suppliers to be successful is a long-term strategy that delivers benefits for all.
I do believe in the strategic and cost savings power of procurement; and recent lessons, such as the COVID-19 PPE and the schools’ sanitiser scandals, have only confirmed my thoughts.
You may think, ‘Ah, but I’m in finance. We don’t need to concern ourselves with procurement processes like manufacturing companies do. Sure, we don’t even really procure goods.’
But in fact, you do.
In our experience with indirect spend, categories like IT (software and hardware), professional services, facilities management, and IP related consulting, are broadly similar across all industries. And if you are a large finance company, then optimising your tender processes for in-direct spend could save you millions! We have seen it, and we have achieved it.
Cost savings can be strategic
Tender management is about saving you money, but it is also about ensuring that you get the best value and quality suppliers in alignment with your company objectives.
Don’t underestimate the power of a robust tender process in your 2021 strategic plans, and remember to build your company objectives and values into your evaluation and scoring criteria, contracts, and SLAs. We are currently doing this for a company who wish to improve their sustainability performance. By embedding their goals into their tendering processes, we are helping them to achieve their sustainability targets, while in parallel they are achieving innovative, quality suppliers, and cost savings.
In our experience, when you begin think about your procurement function holistically and through the lens of your wider organisational goals, then you will achieve true strategic value.
I look forward to engaging with you all again in 2021. I know this has been a difficult year for us all, personally and professionally, but I do believe that the storm will clear in 2021. The hope that has kept us warm through this strange, extreme time will prevail and see us through to sweeter times.