There’s a savings pendulum that swings, and it tends to swing one way or another.
During COVID, a lot of organizations decentralized spend management decision-making. They wanted to make it easy to get what was needed and keep the business running despite extraordinary circumstances.
We are now seeing that pendulum start to swing in the other direction in response to the economy. CFOs are pushing to bring spending under control, and they are turning to procurement to drive that change and increase cost savings.
Procurement’s instinctive response is to go find savings or focus on consolidation and standardization activities. Cutting costs is important, but procurement needs to be careful about how they approach it. Will their spend management strategy and results be sustainable?
We recently welcomed Matt Reddington, Vice President of Operations of Procure Analytics, and Mu Wagh, their Chief Operating Officer, to join us for an AOP Live session about navigating the transition back to centralized procurement control without letting the pendulum swing too far.
The c-suite has their reasons for reducing the budget, but it is up to procurement and other internal teams to make it happen.
As Mu commented during the event, “Procurement should take a proactive approach, working with suppliers as well as the internal team and stakeholders. That’s where consistency comes from – taking cost out of the business methodically, thoughtfully, and being able to do so with the support of internal teams. That’s very important.”
Another critical ingredient to driving lasting savings is visibility into the spend management process and spend analysis. If procurement can get a granular understanding of the spend, the demand, the inventory, etc, they can use optimization and strategic sourcing to prioritize the most impactful sources of savings.
Procurement also needs to lead a conversation around what the organization is willing to do to get savings and impact the bottom line. Stakeholders should play an active role in making that determination. If procurement doesn’t achieve buy-in at the start of the process, then results are unlikely to materialize later on.
Matt mentioned being a fan of Franklin Covey’s Four Disciplines of Execution and the idea of micro commitments for spend visibility. “What we’ve found with the suppliers that we partner our members with, is that they are willing to make commitments and then report on those commitments.”
If procurement can secure buy-in from operations with the support of suppliers in pursuit of the savings the c-suite is looking for, the long-term sustainable cost-out opportunities they achieve will far exceed piece-based price reductions.
