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 be well received by the Supplier. Especially if the ask came from Procurement, who at the company were notorious for chasing savings and aggressive payment terms.
Rather, Emon devised and gamed out a negotiation strategy with the CIO and his leadership team where the cost reduction ask would be delivered by the CIO to the supplier’s Sales GM, “without” Procurement. This was NOT an escalation. Rather, it was a calculated move that increased the probability of success.
EXECUTION
Emon prepared directly with the CIO with a detailed negotiation plan. The plan outlined the negotiation anchor, concession strategy, and anticipated supplier questions & answers. The preparation even included role play where Emon leveraged his sales experience and acted as the supplier. Once the CIO made the cost reduction ask in a 1:1 with the supplier, the seed was planted. Emon continued to participate in the negotiation behind the scenes in subsequent discussions, unbeknownst to the supplier.
RESULTS
The supplier agreed to the $8M reduction. Soon after, Emon’s team swooped in and managed all the contractual details to memorialize the cost reduction and contract terms. The IT organization at the company was able to achieve their in-year savings target solely because of this initiative.
CRITICAL SUCCESS FACTORS
- Strong partnership between CIO and Emon, giving Procurement a seat at the important tables
- Emon identifying a concession that was high value to the supplier and low cost to the company
- A CIO and IT leadership willing to try a new approach and participate in negotiation planning
- Aligned cost reduction priorities between IT and IT Procurement
Meet Emon Sobhan – OnDemand Network Member Since 2021
Emon Sobhan is a Procurement executive with 20+ years of experience in strategic sourcing. He is a skilled and proven negotiator with expertise in building relationships, identifying savings, sourcing a wide variety of categories and in administering complex, multi-million-dollar contracts.
He has specialized in the IT category and has led IT procurement teams at organizations such as CME Group, Kraft, and Gilead Sciences managing hundreds of millions of dollars of spend.
Emon prides himself in being able to align and build partnerships with his stakeholders to position Sourcing as a trusted partner. He has BA in Supply Chain Management from Michigan State University.