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In this article, we look at five steps to identify and prioritize cost-saving measures that increase the likelihood of success.
The procurement department has a unique opportunity to influence both top-line growth and bottom line results in the company. Top-line growth can be affected by, among other things, knowing the supplier market and contributing to innovations that can create growth, while the bottom line is affected by cost-saving measures. The procurement department should at all times have insight into its spend potential and opportunities.
It's not just about "squeezing" a little extra during a negotiation, it's about knowing your own spend and analyzing the opportunities that lie within it.
Do you find it difficult to get the overview you need and prioritize the different measures? Using the following five steps to identify and prioritize cost-saving measures will increase your likelihood of success.
1. Get a Total Overview of Your Spend
First of all, it's important to establish an overview of your spend. You don't want to ask the suppliers for details about your spend, and therefore need to extract the data from your own systems. To obtain this information, the data must often be collected and compiled from multiple sources.
2. Classify or Categorize Your Spend
In the second step, you need to classify, or categorize, your spend data. The ultimate goal here is to manage and apply applicable procurement measures for the various categories reflecting the supplier markets. Think about what spend that can be addressed together to improve your bargaining power. Don't fall for the temptation to categorize your spend solely by using supplier data, as they often serve multiple categories.
3. Identify Opportunities in the Categories
After the spend has been classified into categories, you need to analyze your spend to identify savings opportunities.
In other categories, more demanding measures may be required, which may take a little longer to implement than the commercial levers mentioned above. It may be appropriate to consider optimizing specifications, reducing consumption, or entering into strategic partnerships with selected suppliers to identify opportunities. Start with the largest categories and work your way through them systematically.
4. Assess the Potential and Feasibility
Once the list of possible measures has been identified through a data-driven and fact-based approach, you need to estimate the potential and feasibility of the different measures. This allows you to identify potential "quick-wins".
Start by giving the various measures a score (e.g. from 1.0 to 9.0) for both potential and feasibility. The measures can then be easily visualized in a diagram along these dimensions, which in turn can simplify the prioritization process.
5. Create a Plan and Allocate Resources
When the measures have been prioritized, create a plan and allocate resources for implementation. Make sure "low hanging fruits" are implemented first, and consider executing the remaining measures in so-called waves.
With a robust and well-defined plan in place, you just need to get started.