The offense and defense of cost optimization
By Lara Nichols -- Purchasing, 10/15/2009 2:00:00 AM
No matter how you phrase it, the economy is the hot topic for business. As purchasing professionals, we are in the center of the storm. No matter what strategies a company pursues this year, cost containment is most likely a part of the plan. So all eyes turn to you for more savings, less spend and lower (fill in the blank with operating expenses, EBIT or cost per goods sold).
For those who embrace it, the current economy provides an opportunity for sourcing and procurement professionals unlike any we have seen in decades. So how does one handle this high level of interest in all elements of supplier work? What you choose to do to answer this question will shape your purchasing sophistication and may define your career.
Success requires concentration on multiple facets of cost optimization. Think of your plan as "offense" and "defense." Some of your work will include the tried and true formulas for reductions using standard tools: competition, negotiations and volume or time-based discounting, also known as The Offense. However, some of your work will involve new and creative approaches to minimizing spend in a recession, also known as The Defense.
The trick is to make sure that you have the right mix of offense and defense to provide the most impact now and the best planning for 2010. Spend too much time on offense projects and savings don't get into the business soon enough. Spend too much time delivering defensive projects and the company may be at a disadvantage when the focus eventually turns to growth in an economic upturn.
If you think of your supplier plans in an offense and defense playbook model, you will naturally build a multi-faceted approach that will draw in business owners, finance experts and key suppliers. The high-pressure cost reduction goals become shared goals with everyone contributing and an eye toward the future.
To support the offense play, consider the projects your company is pursuing. The projects may be more tactical and operationally oriented than usual, but there are still great opportunities for strategic sourcing initiatives. Question every engagement, even those that have standard suppliers with whom you have successfully worked for a long time. Business leaders who are typically reluctant to take the time or energy to complete the sourcing or negotiations work may be more open to the idea. These days everyone wants to contribute to savings goals. You may never have another such golden opportunity to enable sourcing. Seize the moment to lead the more operationally minded sourcing work.
With the defensive play, tap your suppliers to teach you to think about cost savings measures in a different way. Brainstorm with business partners to identify ways to reduce costs. Develop a spend reduction program that influences buying decisions as well as daily operational reductions. Defense is about "shutting it down, quick-hit, tactical improvements to pave the way for more offensive plays. Some defensive play examples include switching your printers to duplex printing, creating an overnight reduction in paper consumption of 50%; investing in technology to allow employees to have face to face meetings—without traveling; and working with your wireless provider to identify no-use or low-use phone numbers and turn them off.
Emerge from the back office, take your seat at the table, bring ideas and deliver what your company depends on you to provide.
Congratulations to Tyco International
09/16/2009
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