Cost Management: More than Just Savings

Cost Management: More than Just Savings

While the ability to see the “big picture” is considered crucial in corporate cost management, those who have worked in Central Procurement have a deeper appreciation for the value of the detail. Cost management professionals must work from a sound global strategy at a local level, and that is impossible to do without a unique ability to manage details – particularly given the ongoing demand to drive down costs in a business category that is inherently a spend.

Local procurers must be cost management experts with the ability to find the hidden value that frequently can only been discovered through ongoing, extensive contact with the serviced locality. By leveraging this knowledge of the area, they can provide the essential information business leaders require to make sound decisions.

Procurement: Saving, not just Spending

Unfortunately, global cost management strategies proposed from Central Procurement teams can sometimes look great “on paper,” while in reality they end up actually increasing costs. Consider the following example from a well-known corporation:

Quick cost management analysis in Central Procurement revealed that 30% savings across all their companies in Europe could be saved, simply by requiring all sites to switch to centrally sourced cardboard merchandisers. The projected cost savings spurred quick action on the idea, and the new standardization was implemented.

Shortly after new contracts had been signed and directives shared, local offices began reporting significant problems – as one major location shared, “30% savings cost twice as much trouble”! As it turned out, shipping from centralized locations (rather than local companies), took longer and was more expensive. Delivery dates were missed, and this caused cascading delays and disruptions during a critical production time for the company.

The Central Procurement team had made the simple mistake of acting globally on the big picture, without consulting local subject matter experts or conducting an in-depth review of local impacts.

Despite the 30% projected savings, the new procurement plan actually cost more money when shipping costs and lost time were considered.

Think More, Buy Less

Driving down spend reports at regional and global levels will always be a driving factor for Central Procurement, but attempting to do so in a non-systematic way will not pay off in the long run. Cost management experts must bring their knowledge to in-depth discussions with local purchasers and providers, and they must examine local solutions to global issues. In developing the strategy, procurement specialists should ensure there is a system in place for local markets can provide feedback and raise concerns. By managing these problems efficiently at a local level, Central Procurement will be freed to devote more attention to developing stronger procurement and cost management strategies.