“ZBB is not a cost reduction tool or a weapon to beat suppliers with, It’s a framework by which companies approach every budgeting period as if from scratch, completely removed from past results.”
According to Harvard Business Review, under Zero-based budgeting (ZBB), “Expenses must be justified for each new budget period based on demonstrable needs and costs, as opposed to the more common method of using last year’s budget as your starting point, then adjusting up or down. ZBB is a straightforward, intuitively simple way to aggressively strip out costs that cannot be rationally justified.”
Sounds wonderful, right? Well, as this week’s guest (and the HBR article referenced above) point out, there is no such thing as a ‘one-size fits-all’ silver bullet, even when it comes to aggressively cutting costs.
David Ward is the Director of Global Sourcing & Procurement at a global pharmaceutical company, and has held procurement positions at Ford, Rolls Royce, AstraZeneca, and Unilever. During his time at Unilever, he became the ZBB Programme Leader for Marketing and Business Services, and so he has seen the advantages and disadvantages of this budgeting and management method first hand.
In this interview, David explains how ZBB works and whether it is a strategy that procurement should actively consider in the current economic conditions:
- ZBB forces leaders and managers to scrutinize individual costs and key business drivers through an analytical planning process, developing budgets from the bottom up
- The budgetary process (whether using ZBB or not) provides an exceptional opportunity for partnering with the business
- Governance is absolutely essential for companies to preserve the full value of their sourcing projects, not just for contract compliance and savings
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Links & Resources
- David Ward on LinkedIn