Learn How to Reduce Cost by more than 28% – 10 Steps!

“Higher management doesn’t much care about the procurement department and keep them in the reactive mode therefore the department itself should adapt a proactive approach by maintaining a long term relationship with trusted vendors, ensuring transparent communication, highlighting the best practices, developing data driven strategies and streamlining its bidding process that could ultimately cause millions of savings to the organization.”

The approach discussed below is very effective if followed along with other things in relation to every individual case. You need to devise a very strong data driven strategy and document, in written, every step of your policy that can be tracked and traced. In this case you will be able to save large sum of money and can outsource other experts to come to your organization.

Your target should not just be cost reduction like in 90% of cases where the organization’s biggest concern is for bottom lines like profit margins, cost, etc. you must focus on overall organization efficiency and ability to bring things forward for business growth. In order to do so you must adapt a 12 month cost analysis approach in every area and then prioritize it from simplest expense to the most complex ones and include that as part of our procurement strategy.

  1. Gather Information:Collect all the proprietor data such as manuals, forms, templates, etc and indentify your spent/budget areas (largest to smallest at least for 12 months). Set up SOPs about your best practices and note it down in a written form. It must incorporate the vision and mission of every department (which can be different for every department), departmental and organizational goals and what is their impact, etc.Best practices can be well defined as finding everything from organizational mission, goals and vision and putting them in the finest procurement department and shared services department and really holding on them.
  2. Complete Analysis of Budget Areas:After ensuring complete agreement among your team members conduct a thorough analysis of all areas involved such as Finance, Admin, Operations, HR, Executive management and anybody else involved. Bundle up the departmental divisions and categorize them like first, second and so forth.
  3. Best Value Determination:Determine the best values (anything that cause usage of time, money, resources) of each department. There are many areas of best practices such as Product and service quality; Delivery times; Return authorization process; Invoicing; Payment terms; Green compliance; Government procedures; Sarbanes Oxley (SOX); Quarterly analysis; Reporting; Negotiate improved pricing; Online ordering; National / Regional vendor; 24-Hour delivery; Vendor audit; and etc.
  4. Team Communication:75% of the problems lie in bad communication among team members/ misunderstandings, etc. The communication should be clear among all team members and that will go in the RFP process. After it is in place a RFP scope work letter is formed. ‘Above the Standard’ has over 5000 such templates ready to be plugged and played in its office.
  5. Create RFP/SOW Letter:Start by designing a SOW letter that highlights the best practices and
    which would be later publicly used to clarify what your needs are and safe you from the hassle of multiple questions.
  6. Send Information to Vendors:RFP SOW Letter initiates the bidding process. It includes all important data such as the best practices, next meeting time for price negotiation, what is your bidding for, etc all to be filled by the vendor. The vendors selected will be from those who you currently utilize for the goods and/or services, as well as new vendors selected by you and your team, those from your e-procurement system, and other vendors who have solicited you in the past. Now e-procurement has made bidding easier by knocking out those clients that have their sales forces working. All of them are hesitant to go over the soft copy and fill in the forms.
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  7. Bid Proposal Receipt and Evaluation:Once the forms are received back according to the best practices prioritize
    them based on different attributes you needed such as warranty, cost, delivery, etc.
  8. Winning Vendor Selected:Notify the winning vendor and document at various places to keep a safe
    record. Scope down to three vendors by calculation the sum of each attribute.
  9. Contract Sign and Implement:Some implementation could be easier some harder. You compare the new
    Vendor prices with the old ones and identify the difference which is lowest in cost but highest in best practices.2
  10. Implement and Next ProjectYou will be able to make some serious cost reductions and move on to new further projects.

Conclusion:

In order to ensure the right procurement, team work and clear communication
is very important. The higher management doesn’t much care about the procurement department and keep them in the reactive mode. It has limited staff and normally 90% of the organizations are not doing any type of bidding at all. The department itself should adapt a proactive mode, maintain a long term relationship with trusted vendors, ensure transparent communication, highlight the best practices, develop data driven strategies, streamline its bidding process and identify its departmental mission, vision and goals and bring them in line to organizational mission vision as a whole that could ultimately cause millions of savings to the organization so new staff could be hired for the procurement department. It should always be kept in mind that procurement cost reduction is better them simple cost reduction as it is not only about price, but …. time, labor, vendor relationships, compliance, returns, customer service, staff knowing how to order, control over what is ordered for cost control, invoicing and purchase order efficiency, compliance, measurable performances, vendor management, relationship development, etc are all very major factors to be considered while aiming for cost reduction.

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