Tips for controlling costs
By Tim Minahan -- Purchasing, 2/12/2009 7:00:00 AM
Lawmakers are taking unprecedented actions to stabilize the financial system. Businesses too must find ways to control costs. Spend management can help. Here are tips for getting started.
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Target new spend categories. With high volatility and inflation running rampant in core commodities, spend management leaders are turning their spend management sights on new categories—including many of the "sacred cows" such as legal and advertising—which were once outside the realm of standardized sourcing and compliance procedures.
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Squelch the mavericks. Secure C-level support for policies, procedures and tools to drive internal compliance with existing supply agreements and to ensure that vendor agreements are negotiated and finalized according to company policy and then implemented and complied with quickly.
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Manage your cash. As the saying goes, cash is king. And in today's economy this is true both for you and your suppliers. If your cash strategy is to delay or extend payment cycles for suppliers, you're putting your company at risk. Consider one telecommunications company that secured 60 day payment terms from customers but paid its suppliers net 75 days. When two suppliers went belly up because they didn't have the cash to fund operations, the telecom company was sent scrambling to find alternative supply. One of the quickest ways to get cash under control is to automate the invoicing and payment process. This gives you clear visibility into your commitment and payment streams, ensures invoice and payment accuracy and increases rebate and discount capture. Most importantly, this new visibility allows you to make informed payment decisions based on cash needs, early-pay discounts and rebates, and overall supplier viability. Companies that have automated their invoicing and payment processes report that suppliers typically grant concessions of 0.5% up to 4% for faster payment.
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Work with your suppliers. In a tumultuous economy, it is more important than ever for buyers and suppliers to work more closely together, share the economic burden of the times, and embrace innovative ways to ensure their mutual health. As the gap between low-quality and high-quality borrowers grows, more suppliers will experience cash flow problems. For forward-looking buyers willing to come to the rescue of their most important suppliers, third-party supply chain financing options exist today that enable buyers to hold onto their cash and suppliers to be paid early at far more competitive rates than traditional factoring or card providers allow. Buyers can use their good credit rating to help suppliers borrow at lower rates than they could achieve on their own. The result is a healthier and more productive relationship and supply chain.
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Don't be afraid to get help. Faced with pressures to deliver more savings faster than ever before, many companies are now looking outside for spend management process support, spend category expertise, or just additional arms and legs to help execute their savings plans. To meet budget constraints, many enterprises are revisiting variable or performance-based agreements that allow them to pay for all or a portion of these outside services based upon savings achieved.
Though the pundits will continue to try, it's impossible to predict where the economy is headed. But by following these tips, companies can assert control over their physical and financial supply chains, minimizing the impact of the downturn on their business, and positioning themselves well for faster growth when the market finally rebounds.
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