Procurement consulting

Cost Reduction Hacks for the Budget-Strapped Business

The scene: A corporate conference room at nine AM.  The sun is shining through those odd meeting room blinds that no one seems to know how to maneuver.

The cast: One consultant and three members of the company procurement team, all poring over one very densely populated spreadsheet.

The question: How do we as a company find enough cost savings to carve out a marketing budget for this quarter?

If there’s one thing we can count being asked as operations and procurement advisors, it’s this one–how do I eek out some savings here in order to make an investment there?  That’s exactly why one of the first things we do in an engagement with a client such as you (after making sure we know how to get to the break room and the bathroom) is to dive headfirst into your spending. It’s not a romantic task, it’s not strategic, but it’s critical. And in every case, the numbers give us a metric ton of good info about whether your supplier partnerships are giving your mission wings, or weighing like an albatross around it’s very neck.

When you’re a small company with a lot of bills and not much buying power, getting the right third-party supplier support can seem positively daunting. And if you embrace the “you get what you pay for” model, it may seem like your modest purse will never get you to the cutting edge. But there are many ways in which a smart dollar trumps a small fortune, and here are a few to start the ball rolling:

1. Follow the Crowd
There is a huge conversation underway around crowdsourcing. Imagine a sea of creatives, graphic designers, writers and other professional services freelancers, all plugged in to a communal stream of opportunities via a technological crowdsourcing platform. These folks raise their hands for whichever projects interest them most, the crowdsourcing mediator applies controls to each challenge to ensure quality, confidentiality, etc., and projects are awarded to the very best option for that particular need. Since there is very little overhead or other ancillary costs in this sourcing model, the result is excellent work that meets your specific need at a fraction of the traditional cost.

Crowdsourcing is an important tool in the budget sourcing kit, and like any tool (except perhaps my husband’s old Army-issue P-38, for which he has an almost MacGyver-like zeal), is not a slam-dunk solution for any need.  That said, under the right circumstances, the crowd-sourced approach can open some purchasing doors that have until now seemed impossible to budge. There are many platforms popping up all over–have a look at eYeKa and DesignCrowd and the now-famous for starters.

2. Add an “e”
E-Sourcing isn’t new, but it continually surprises us how many major corporations have yet to fully embrace this phenomenal tool. For the uninitiated, eSourcing–and specifically for the purposes of this conversation, eAuctions–provide a fast and fully transparent means of taking a purchasing need to market. Rather than muddling through manual negotiations and depending upon benchmarks that may be dated or irrelevant, auctions condense your negotiations into a period of one to a few hours and give you up-to-the-minute market pricing straight from the market itself. Plus they’re pretty dang exciting to watch. We’ve seen whooping.  Actual executive whooping…

But we digress.  All pricing is submitted via an online tool in (typically) a live event. The contenders change pricing in real time in response to the activity of the market, and that phenomen allows for, in many cases, outcomes that far exceed anything that sitting at a negotiation table could do. There is certainly an art to this process and best practices to be learned, and it’s important to remember that this approach will not be the right one for every sourcing need (see P-38, above).  However, with the right guidance and when applied to the right situations, the sky is the limit. One of the best auctions we ever experienced was for a scientific compound, which resulted in a 60% savings across a base composed entirely of incumbent suppliers, all in the space of about an hour. Now that’s a good day at the office.

3. Look Under the Hood
This one is simple. Before you spend that dollar, do you know exactly what it will give you? Does it have a measurable impact? Does it grow your top line or increase your contributions more than it takes away from your organizational piggybank? If you don’t know the ROI of the goods or services you buy, find out. Make this assessment a core element of your sourcing process, and revisit it every time you review your key suppliers. In the digital age, data is everywhere–you just need to interpret it and make it speak to you. It will tell you whether or not that spend is warranted, and if not, perhaps you should revisit your strategic options.  Or maybe you should borrow somebody’s P-38…

Photo Credit: Wikimedia Commons

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