Can You Even Identify Savings to Realize?

A few week ago we sort of put the cart before the horse when we noted that Realizing Those Savings is No Easy Feat because many organizations will undertake sourcing events, cut contracts, but then fail to realize 30% to 40% or more of the expected savings (and this has been the case since AMR’s classic studies on savings realization over a decade ago, well before they were bought and absorbed by Gartner).

So even though it’s sort of putting the cart before the horse to put an infrastructure in place to capture savings, without such an infrastructure, identified savings won’t realize. So it’s really not a bad idea to start with Procurement platforms that capture savings, because you need them.

However, today we’re going to assume you have such an infrastructure in place, and ask the question, even if you do, can you identify real savings? It’s a lot harder than you think. It’s not the lowest cost. Or the lowest landed cost. It’s the lowest total cost of ownership … over the product lifetime, which could be for years if you offer a warranty. Because not only is their warranty costs, there are return logistics costs as well!

But it’s not easy to capture all of the relevant costs in an RFI, nor is it easy to build the models that can accurately model total lifetime cost of ownership in Excel. That’s why the doctor has been promoting optimization-backed sourcing platforms for years — only those platforms can accurately compute lifetime costs and allow for the right fact-based negotiations and award decisions.

But it’s not just cost that needs to be considered, it’s value and service levels. You need customers to want your products, and you need delivery times you can depend on. But value and service guarantees cost money, and in inflationary markets, that means costs just go up and up.

If market prices are increasing, and you need to improve service levels and add more value-based features to appease customers, can you even identify savings?

The answer is, without the right platforms that allow you to look at your costs holistically and find ways to minimize them beyond just a price-based bid, is that you can’t … at least not after the first time you’ve “strategically sourced” a product. Additional savings will come from better category definition and alignment, smarter network design, better inventory management and aligned inventory levels, and up-sell opportunities from more appropriate, sustainable, sourcing selections.

And that will require the right upstream technology that will include the following:

  • supplier discovery to identify the right suppliers
  • optimization backed sourcing to make the right value-based decisions
  • supplier management to make sure the relationship and performance can be managed
  • risk management to identify, monitor, and mitigate potential disruption risks
  • analytics to analyze past, current, and ongoing price and KPI performance
  • CLM to manage the contract, obligations, and identify the time for renewal, renegotiation, or termination

And that’s why you see a proliferation towards Strategic Procurement Technology Suites and why the doctor has teamed up with Spend Matters to analyze them. Platforms are becoming key to identifying real, sustainable, savings — but only if they are the right ones for the customer base they are installed in.

Click to go to the full article:
http://sourcinginnovation.com/wordpress/2019/05/30/can-you-even-identify-savings-to-realize/

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    A few week ago we sort of put the cart before the horse when we noted that Realizing Those Savings is No Easy Feat because many organizations will und
    [See the full post at: Can You Even Identify Savings to Realize?]

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