Uncertain conditions are forcing many companies to cut costs. But there are ways to soften the blow – if you know where to look
The economic waters have been extremely choppy for some time now, and most organisations are facing intense cost pressures. For some this means taking decisive action to freeze discretionary spend, for example, or to cut marketing budgets or even reduce head count.
However, this can impact badly on your organisation’s goals – making it more difficult to deliver sales targets, provide quality of service or fully commit to client projects. This is especially the case in the public sector where the pressures to reduce costs have never been greater.
Opportunity:cut costs in third-party spend
Fortunately, there are ways to lessen the need for cost-cutting measures. Ian McNally, of procurement specialists Efficio, suggests taking a cool look at your organisation’s third-party spend.
This, he says, can produce huge opportunities to reduce costs and avoid potentially damaging action such as staff cuts or budget freezes – because cutting procurement costs translates into immediate bottom-line savings.
McNally points out that external spend typically represents anywhere between 30 per cent and 80 per cent of a company’s cost base. The approach to tackling these costs has become a lot more sophisticated.
“Things have changed in recent years,” he says. “Historically the main lever was the power of the customer to pressure suppliers into reducing costs.
“But nowadays savvy procurement professionals’ use more advanced approaches. These can include refining specifications to cut out unnecessary purchasing and analysing the extended supply chain to look for efficiencies. A focused dive into your suppliers’ costs can highlight many areas of opportunity to address further expenditure.
“Properly assessing the organisation’s own demand for services and products – asking whether suppliers can be used more cost-effectively to drive value – can make a big difference.
“We use a variety of tools to streamline the cost base and can effectively address most areas of an organisation’s purchasing.”
It is clear that the impact of a structured programme to drive up procurement performance can be enormous: there are many examples of huge savings in everything from raw materials to services.
The added benefit of such a programme is that when economic conditions improve, those who have used the bad times to sort out their procurement operations will emerge leaner and fitter.
They will then be well prepared to take advantage of the improved outlook when sunnier times return.
