It used to be enough to just have a procurement team to keep costs low. Numerous organizations created a centralized function of this sort to help consolidate vendors, negotiate as one entity and build some best practices into what is purchased and how.
Every now and then teams would review vendors and tender the business to the market. Sometimes existing vendors of record would get a stern phone call and be asked to match a few prices from a new would-be supplier and the world would go back to normal for a year or two. This is what we call tactical cost management. It may appear to be strategic on the surface but lacks the dynamism required to truly minimize costs intelligently.
We subscribe to a different approach. We encourage organizations to bring in a third party (whether it is us or another qualified provider) from time to time to challenge existing process and supplier relationships.
Internal teams often get too close to existing vendors to evaluate business properly. Also, internal teams get busy and often take the path of least resistance to minimize workload above and beyond their already busy day. Finally, internal teams often take the safe route to keep their job. They stopped taking calculated risks once the labour market tightened up in 2009. This may sound harsh but it is true. We have seen it on countless occasions.
This has led to a trend in procurement: complacency.
A better approach involves pairing an external expert with existing teams to take intelligent cost savings to the next level. The organization then obtains the best of both worlds: knowledge of the existing business coupled with new ideas that push the business into greater performance. Highly qualified third party procurement service providers take the time to understand the existing internal procurement infrastructure and culture as well as existing supplier network relationships prior to bringing enhanced solutions to the forefront. This is where decades of proven experience is essential. CEO support is a must-have though, or this effort will fail quickly. Also, organizations need to walk the talk on execution or suppliers will quickly sense an initiative with "all bark and no bite" and increase costs as soon as possible. Process needs to be reviewed and measured. Roles need to be clear and support the underlying strategy for each unique industry.
In addition, experienced third parties can help establish, mentor and execute a new paradigm of procurement best practices and cultures that will benefit organizations over the long term. Sometimes existing procurement teams are solid but need a catalyst to strive for more. Sometimes people gaps are too wide and teams need to be upgraded. We have seen it all.
If organizations want to save significant cost and drive financial performance they need to have the intestinal fortitude to give their existing procurement team an intervention of this magnitude.
It can be uncomfortable at first but the organization will be much better for it.
Tony Whitehouse & Bruce Winder
Co-Founders & Partners, Retail Advisors Network™
Retail Advisors Network™ Consulting Division serves retailers and vendors with business challenges and opportunities. We can be found at: http://www.retailadvisorsnetwork.ca/ See our contingency cost savings service at: http://www.retailadvisorsnetwork.ca/contingency_model