by Jan Malasek | Sep 13, 2023 | Strategic Sourcing
As companies move to IT Cloud-based computing infrastructure, many are finding that costs far exceed budgeted forecasts. Such was the case with an organization that recently moved to Cloud-based systems and needed to find ways to reduce and mitigate the unexpected costs. SITUATION OVERVIEW A fast-growing Digital Advertising Firm, which had recently migrated to a cloud-centric compute environment was faced with costs that greatly exceeded forecast. The CIO, CPO and CFO were all under pressure to rein in the overages, enhance transparency and implement governance processes. They were also asked to allocate cloud costs to each business unit, to foster accountability. The company engaged Jamie Martino, a member of the OnDemand Professional Network with Strategic Sourcing / IT Category Expertise and an extensive expense management background, to evaluate the cloud optimization market. Martino was charged to work with IT and Procurement to identify aligned vendor solutions, which could reduce costs by at least 30%. DISCOVERY & EVALUATION During the Discovery Phase, the team learned that there was a robust set of platforms and managed services available in the market, which claimed to far exceed the capabilities of generic tools offered by the cloud compute vendors themselves (AWS, Azure, GCP). Through conversations with reference clients of these firms, the team was able to validate that 30% savings was a realistic goal. They learned that common drivers of overages stem from a lack of visibility and challenges related to aligning the purchase decision for each Instance with the best opportunity available. Cost overages were often due to: Zero Usage InstancesOver Engineered InstancesDecentralized non-strategic ‘buying patterns’Unclear Ownership & Inability to allocate costsLack of Internal Resources...
by Jan Malasek | Jul 13, 2023 | Strategic Sourcing
By Gary Long – Vice President, Client Services Let’s say you’re committed to reducing costs whether it be direct materials or indirect materials and services. Where do you start? This article covers the essential steps for conducting a spend assessment which has a number of key challenges from “dirty data” to stakeholder alignment. Step #1 – Data CollectionA good starting point is understanding exactly what you purchase currently, from whom do you buy it and at what cost; what is commonly referred to as a “spend cube”. This is easier said than done, especially if your company has multiple divisions, multiple systems etc. A typical starting point is collecting an Accounts Payable file or files covering one to two years of purchasing activity. Step #2 – Data Cleansing & NormalizationThe data first needs to be cleansed and normalized (IBM vs International Business Machines vs I.B.M.) before you begin to identify where the opportunities might be. This step is not to be taken lightly as it can be painstaking work. Hopefully you have a tool that can help with this, or you may utilize a third-party who has an intelligent tool (helps with categorization) and may choose to do the work somewhere where labor rates are not as expensive (e.g. India, Eastern Europe). Step #3 – Data MiningOnce the spend cube is developed, then what? You need to search for potential opportunities. Look for evidence that spend is fragmented across a given category or categories of spend. If your company is buying laptops, whether with the same specifications or different, from five different suppliers, at different pricing levels, that would...
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...
by Jan Malasek | May 10, 2023 | Procurement Operations, Strategic Sourcing, Uncategorized
By Steve Miller – https://www.linkedin.com/in/stevemiller-coo/ Mike Nolan of SourceSuite.com noted that “the first traces of procurement can be seen throughout ancient history, including the Egyptians in 3,000 BC.”1 Jose Ignacio Lopez de Arriortua made a company’s lead procurement role both famous and infamous over 30 years ago by first helping GM to “save billions of dollars” and then being “charged [by GM] that he had absconded with 20 boxes of top-secret documents.”2 Is it surprising, then, that after thousands of years of practice and 30+ years of high visibility that most CEOs and CFOs up until 2020 believed their procurement functions were either world class, or at least adequate, for the business challenges they might face? These executives learned from 2020 to 2023 what many top procurement experts already knew: you can find stars and strategic executives in procurement, but overall, it is a function very early in its transformation toward functional excellence. Most business executives don’t understand what excellent procurement looks like. As an example, a Fortune 100 CEO in 2019 said this about the value of having a head of procurement: “if we can buy things like pencils for a cheaper price, then why not?” It probably is not a surprise that in 2020 this company saw its direct operating and SG&A costs increase over $400 million, almost all of which dropped to the bottom line in terms of reduced operating income. Kearney’s 2022 Assessment of Excellence in Procurement study found that leaders, compared with their industry peers, generate nearly 2x more total shareholder return, rebounded 3x stronger through COVID, and contributed 200 basis points more to...
by Jan Malasek | Mar 21, 2023 | Strategic Sourcing
A global confectionary company with HQ in the US has embarked on a mission to reduce cost and improve strategic supplier relationships. While making strong progress in most areas, Brand and Marketing has been a challenge to engage due to their perception that Procurement lacks subject matter expertise. In order to address this perceived shortcoming, the Global Director of Procurement turned to OnDemand Resources for help to provide a Marketing Spend Sourcing Expert who could lead projects across the Brand and Marketing Category. OnDemand engaged a former client and current independent consultant / member of the OnDemand Professional Network Michelle Griffith to help the company develop and execute strategic sourcing relationships with their Marketing partners. SITUATION OVERVIEW The Marketing Category was challenging – Client had a large portfolio of brands (15+) and a large portfolio of agency types on the roster (15+) – all at different life cycle stages and with significantly different budgets. Additionally, the Client was transitioning a new piece of business, bringing in not only new brands but also new staff members that were not accustomed to their policies and practices. Single sourcing was happening throughout the organization as the procurement function was relatively new to most. Michelle started to engage with Brand and Marketing on smaller projects to build momentum – she understood that building trust and relationships is critical to procurement success. As time progressed, she was able to demonstrate significant procurement value and was tasked to lead larger and more complex sourcing engagements. Her success in building substantial procurement momentum helped Brand and Marketing deliver significant and sustained results. The Client was so...
by Jan Malasek | Jul 19, 2022 | Strategic Sourcing
SITUATION OVERVIEW A leading global transport company anticipated generating significant cost savings and scale efficiencies as the direct result of a merger. A majority of the cost savings were expected to come from a North America-wide strategic sourcing initiative, within which Employee Benefits was targeted as a key savings area. The company lacked deep domain expertise in sourcing employee benefits – given the potential for significant savings, but also the risk involved in sourcing this category, the company turned to OnDemand Resources to provide a strategic sourcing expert with deep experience sourcing the employee benefits category. Their desire was to deliver savings while maintaining benefits levels, and also transfer category knowledge onto their in-house team for on-going effective category management. OnDemand offered several consultants with the desired background, and the company chose a member of our OnDemand Professional Network to lead and implement the project. SOLUTION OnDemand consultant provided hands-on project leadership for cross-functional teams in understanding and defining requirements and managing the transition throughout the company. He followed a sourcing methodology that included spend analysis and requirements gathering, especially focused on understanding the current benefits levels, market research and sourcing strategy development, and contract negotiation and implementation. The consultant worked closely with internal resources to develop and implement an e-auction process for each product within Employee Benefits category in order to maximize marketplace competition and savings while maintaining – if not improving – each segment of the employee benefit program. RESULTS The results of the process far exceeded our expectations, especially in light of the very short timeframeDirector, Indirect Sourcing As a result of OnDemand consultant’s leadership, the...
