by Jan Malasek | Jun 9, 2023 | Strategic Sourcing, Uncategorized
Procurement’s lead involvement in addressable spend is readily understood. Less frequent is its involvement in spend area defined as non-addressable spend – often a strategic supplier with a long term contract that is not coming up for a renewal and/or high switching cost. A global food manufacturer relied on Emon Sobhan, a current OnDemand Professional Network member to help them find ways to deliver significant savings in an area that was not an obvious focus. SITUATION OVERVIEW The F500 company was embarking on an aggressive multi-year cost savings effort that trickled down to the IT Department. They subscribed to a zero-based budgeting process and their approved budget was already lean for the year. Nevertheless, IT was tasked with finding an incremental $8 million in savings from their budgets and had to do it without cutting any projects. Based on identifying addressable spend, it was clear the $8M savings target was far from reach. The largest spend areas for IT were in the un-addressable spend category. These were spend areas considered “off limits” due to various reasons including contract terms and/or high switching costs. APPROACH Emon had a creative idea to find the $8M cost reduction in an area no one was looking because this spend was considered “un-addressable”. The spend was currently under contract not due to expire for over 2 years and with extremely high switching costs. Moving away from this supplier would be a massive multi-year undertaking that would be riddled with risk. THE TWIST The $8M cost reduction ask represented a whopping ~25% of the supplier’s annual contract spend so Emon knew the ask would not...
