From Ideas To Savings - Chapter 1
For many experienced professionals, the process of delivering value or savings after having identified a good opportunity has become automatic, almost a second nature.
But for those who are newer to Procurement, it's always useful if someone can point you in the right direction or can give you a few useful hints.
And the seasoned buyers might even learn something new well.
In this series of articles, we will give you a glimpse at what we believe is the typical process of identifying opportunities, prioritising them and managing the whole project until completion. We'll also discuss how these processes can be enhanced by technology.
With this first article, we'll tackle the various stages from the development of an idea until the moment it becomes an actual opportunity.
The following chapters will cover:
- Chapter 1. How to prioritise opportunities to build a relevant and coherent action plan
- Chapter 2. How to efficiently manage your project portfolio into procurement projects
- Chapter 3. How to plan, action and analyse procurement project
Chapter 1. From Ideas to opportunities
Let's start with the basics:
Unsurprisingly, a buyer will typically look in the spend data to find opportunities. This could be anything from new suppliers that Procurement has just formally evaluated to commodities where you could alter the supplier base (reducing it to get more leverage or expand it to reduce dependency / risk).
A lot can be seen from spend patterns if your spend data is properly categorised, regularly updated and rendered in the right way.
Don’t underestimate this, it’s a real challenge! Getting the right tool for the job is essential and you need to reckon the fact that you will have to dedicate some resources (money and people) to this task. Sure it will be a tough sell to your CFO, but ask him how much he has invested in order to get a proper and tidy chart of accounts.
Next, you should look at existing contracts: you will see if contracts are going to expire and need to be renewed or renegotiated. Of course, this only works if the information is readily available in a form of centralised, proactively managed contracts repository.
This part can be seen as “keeping the lights on” but a lot of both risks and opportunities lies there: forget about an expiration and you may find yourself with a supply issue… or let an automatic renewal slip through and you end up with an automatic price indexation, resulting in a net price increase.
This is another area where you need some tools. Much too often we see customers dumping overweight PDFs on a network drive. This is a bit the Elephants' graveyard of contracts.
Slightly better, but still not cutting it, is the Excel contracts list. You get a list, but you aren’t able to find the document easily and there is no alert regarding contract expirations.
A simple contract management tool will let you easily register the contract and set alerts. Not only will you no longer get the bad surprise of an expired contract, but you will have an overview of how many contracts will require your attention and will be able to plan your workload accordingly.
This is the point most often overlooked: observation. By looking at how people spend money or consume goods and services in the organisation, buyers will often find opportunities that are as good as they are unexpected. This could be printing patterns (collaborators forgetting to pick up printouts or colour vs black and white) or the use of telecommunication media or even business travel behaviour (early bookings, over use of private transportation when public transportation is available) to name but a few.
Sometimes there is a lot of value in leveraging changes of habits. Only by lending a careful eye on your colleagues’ behaviours will you be able to identify these opportunities (note: of course, we’re not advocating for total surveillance here ☺).
Finally, you will discuss with budget holders. Engaging them early and understanding their possible objections is crucial. Ultimately they are the decision makers and the ones that hold the purse strings. Of course, you need to be cautious and you don’t necessarily have an automatic “right” to address that spend. You have to earn trust, build a logical case and show that you will bring value.
The good news is that these budgets are almost public information in the company.
And of course, if you uncover any ideas in the previous step, you might have to consult them to understand if the opportunity is real.
Be prepared to listen when your stakeholder inevitably finds reasons not to change anything. Sometimes these will be very valid reasons (such as the total cost to the business of changing suppliers) but more often than not you will need to practice your change management skills.
The good news is that by engaging budget holders and observing spend data you don’t necessarily need to invest in expensive tools. Just pure old soft skills. Now get out of the building (or at least out of Procurement’s office) and find those opportunities that are everywhere!
Stay tuned for Chapter 2, where we will discuss how to turn opportunities into projects and the complexities involved in understanding if they are worth pursuing