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 | Jun 29, 2020 | Procurement Operations, Strategic Sourcing, Uncategorized
SITUATION OVERVIEW National Sporting Goods Retailer desired to build a highly functioning Strategic Procurement organization. They hired Kas Chupa, a member of the OnDemand Professional Network as the new Chief Procurement Officer to drive this effort. Kas was tasked to build a procurement organization with the capability of sourcing $550M of Indirect Goods & Services, Capital Equipment and some Direct Goods for resale and implement year over year savings programs. DISCOVERY & EVALUATION As the new CPO, Kas interviewed all business unit leaders to introduce himself and to get their perspective on what they expected from Strategic Procurement, to understand their business goals and objectives for the coming year(s) and discover how their respective procurement activities were being executed currently. Part of the evaluation phase was to uncover quick win opportunities, prepare the business for the upcoming organizational changes and the timeline for those changes, as well as the Mission and Vision for Procurement within the company. The interviews and data collection revealed the following: All buying was being executed within the various business units by non-procurement individuals.All contracts we being negotiated and signed by the business units with limited to no legal review.There were multiple payment channels, and close to 100 different payment terms. EXECUTION & BENEFITS The CPO quickly engaged external consulting support while he was building internal procurement capabilities. The key focus of the consultants was to work with the business and build strawman sourcing plans and pipeline of quick wins. While focusing on quick wins to demonstrate the value of strategic sourcing and procurement, the CPO built the procurement team with internal resources, with a...
by Jan Malasek | Jun 9, 2020 | Strategic Sourcing, Uncategorized
By David Brown, Vice President, Client Services, OnDemand Resources, LLC We are seeing Marketing spend becoming a key focus area for companies to generate substantial savings. Yet, organizations often put more analytical rigor and require more business justification for a $1,000 laptop purchase than they do for multi-million-dollar advertising investments. Marketing IS one of the last green sourcing pastures in corporate America and one that is particularly ripe to harvest in the current business environment. I have spent a large part of my career focused on enhancing value and capturing savings in the area of Marketing Spend. Here are TEN KEY LEARNINGS that might benefit anyone getting ready to make a run at this elusive space. Additionally, you can review our case study on Marketing Spend Sourcing with a F500 B2B Services company here: Procurement fundamentals are no different for Marketing purchases.Savings are captured from de-fragmentation.Savings are captured as suppliers compete for your business.Audits often find recoverable spend.Professional service costs are a function of labor: the number of resources, the seniority mix, and the market cost for their expertise.Get “C” level executive support and air cover before you dive in.Ideal support comes from the CMO, but the CFO or CEO can make it work, too.If the CMO and his/her lieutenants do not want you there initially, make sure the CFO is willing to stick out his/her neck to keep you there until you can build trust, otherwise, hunt elsewhere.The big efficiencies are where the big dollars are: media. Most companies focus on creative agencies, however the largest spend is working media, both traditional and increasingly digital.Saving ranges in media sourcing are...
by Jan Malasek | Jun 4, 2020 | Uncategorized
David Dickson, Principal of Strategic Planning Consultants shared a paper with us focused on how to approach enabling remote operations with technology during the COVID-19 pandemic. This paper is specifically focus on small to mid-size enterprises. If you are interested, please contact us to set up a conversation with David on how to best support your business. Download the paper...
by Jan Malasek | May 26, 2020 | Strategic Sourcing, Uncategorized
Today’s rapidly changing economy has created immense challenges for manufacturers as supply markets are in flux. Materials markets as sources of supply are contracting, slowing production or disappearing entirely. The current circumstances dictate that competitive manufacturers embrace a structured rapid sourcing approach to ensure that their products remain competitive in the current deflationary environment. There are a number of success factors associated with Structured Rapid Sourcing which include: It is imperative to create a total cost model for the product to be supplied, including logistics and financing costs. Creation of a complete and transparent cost model gives the suppliers the confidence necessary to quote competitively.It is imperative to understand the supplier’s cost structure for the products to be supplied. Raw materials can represent anywhere from 10-70% of the ultimate sales price. Understanding the supplier’s cost structure is integral to the creation of a valid total cost model.Raw material markets have highly variable degrees of transparency, ranging from highly transparent markets for publicly traded metals like copper to somewhat murky markets for less common metals like tungsten or certain plastics or electronic components. When less transparent supplier commodity markets are involved, it is beneficial to go to the market on a more frequent basis.The buyer must have the ability to qualify multiple sources and to maintain those surveillances. Normally, qualifications should be established in advance of the negotiation to help manage risk and ensure that supply changes can be effected quickly, which increases the competitiveness of the market. In the current environment, it is as important to manage risk as to achieve cost savings. MATTRESS MANUFACTURER CASE STUDY We recently...
