It’s a nice surprise when you find money in your pocket you forgot was there. Just like the hidden money you may find personally, organizations can find savings, too. The implications here are astounding; just imagine what any business could do with the extra cash flow.
If you are looking to uncover additional savings from within your company’s spend, here are three things to consider:
Analyze and validate your actual purchasing history
As you are reviewing your purchasing history ask some of the following questions to develop a broader purchasing perspective:
- Who has the relevant data you need?
- Do you need to ask suppliers for information?
- Who are your largest vendors?
- Do you use multiple vendors for similar purchases?
- Is your organization’s purchasing behavior what you think it is?
- Are your suppliers adhering to your contracts?
Understand your qualitative requirements for each cost category
It’s not all about price. Are there specific requirements for product use or selection? What about service “musts”, such as:
- Pick-up and delivery accuracy;
- Responsiveness to requests;
- Expediting procedures;
- Understanding your business, or;
- Ability to proactively suggest purchasing efficiencies
Qualitative variables like these will factor into the vendor selection process.
Understand your real usage models
Re-evaluate your current needs and existing processes. Would simple changes in your processes or requirements allow your suppliers to better service you with greater efficiency, or at a lower cost? Would process improvements or greater flexibility in service requirements allow you to save money and meet your needs? For example, one of our clients was spending more than $400,000 on small package freight with UPS and FedEx. In reviewing the client’s service requirements, we noticed that one of their offices routinely requested first priority, next day delivery on all shipments. Further investigation revealed that more than 50 percent of the shipments did not require this level of service. As a result, that location alone achieved a 15 percent savings.
A comprehensive spending review must include asking the right questions, determining your qualitative needs, and assessing your organization’s purchase history and usage. Each component will guide the development of an effective cost-savings plan.