The main target for procurement savings projects is to drive down purchasing costs, and product prices. The unfortunate thing is that most companies look to introduce a cost savings project when it’s too late.

Picture the usual scenario: a problem will occur affecting margin and the business will react by throwing procurement resource at solving the immediate issue, the team will develop a savings strategy (usually based on scant information) the business will hold them to it (often increasing it without appropriate evidence too). Once the company has identified a savings plan the team sit back thinking it’s a job well done. And herein lies the key problem.

Too many companies fail to adopt Cost Savings and embed as a core business process (as part on ongoing continuous improvement).

On the flip side, without the correct controls there tends to be a free for all in terms of procurement activity, people go out and buy anything from anywhere and that drives cost. Correct controls need to be established in order to maximize the companies funds.

Without a doubt, this is the key difference to those companies that do cost savings well and those that don’t.

So you realize that cost savings should be part of an ongoing plan, but what savings should you embed in that plan? Here are 10 examples

1. Buying against consolidated requirements
2. Buying lower spec parts that still meet requirement
3. Deploying appropriate buying controls (who’s allowed to buy and how)
4. Automate the purchasing process
5. Use effective cost model tools which can be used to track change on built products
6. Compete major acquisitions
7. Utilize appropriate replacement strategies – make purchases only where necessary
8. Review and categorize indirect spend and look for areas of consolidation
9. Train staff on effective purchasing and controls
10. Deploy appropriate metrics and review regularly

Developing a robust savings strategy doesn’t have to be challenging but it does need to be continuous. There are usually a multitude of areas where savings can be made. The usual path is through a combination of indirect and direct savings.

At its root it requires robust and sensible procurement management and co-ordinated and holistic business approach.

How do you manage your savings projects? We’d love to hear about your experiences, feel free to use the feedback section below.


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