StrategicSource Blog

Is improved profitability really a priority for most organizations? 

The implementation of a Spend Management Vision – a dedicated function within an organization is very common in most large organizations. While most organizations that have a Spend Management Vision and Department realize the benefits and efficiencies, organizations that do not have those functions resident in their organizations probably do not realize the costs of being highly decentralized.

Most organizations in the U.S. and Canada are decentralized in their purchasing approach. What that means is various leaders, managers or employees within departments are charged with managing selected expenses, including the periodic shopping, quoting, benchmarking and negotiation with suppliers.

Is your organization unsure if your prices for supplies and services are competitive? In this article, we’ll outline strategies to take back your purchasing power with suppliers using various quoting and benchmark strategies.

COVID was a 2 x 4 to the head in terms of getting our attention and showing us how quickly a business can go from something amazing to pure survival mode. During early COVID times management teams were scrambling to gather information and executing strategies to cut costs quickly, not knowing when business would come back, if at all.

Many organizations have engaged in some form of cost reduction at one point or another. Most cost control actions are short term….designed to quickly reduce costs in some proportion to the corresponding decrease in revenues. But once they’re no longer needed, they’re retired and spending returns to normal. So what now? What do businesses do to keep and maintain a reduced bottom line and enhance profitability? What can organizations do differently to improve results, increase efficiency and improve effectiveness going forward?

All organizations have a purchasing function within their operations. Some organizations centralize their purchasing activities with one group to leverage spend, reduce costs and drive economies of scale. Other organizations decentralize their purchasing responsibilities and spread that responsibility to management closest to their operational responsibilities to maximize the category expertise.

Pop quiz time: How many supplier contracts does your organization have? Where are your contracts located? When do those supplier contracts expire? Which of the contracts will automatically renew? If you don’t know the answers to these questions, you are not alone.

As a purchasing group, we are continually investigating, interacting with and meeting new suppliers and industry experts who have proven they can impact a business in a very positive way. Many of these suppliers have new and innovative approaches to old problems, and some are meeting new challenges head on.

If your business is like most businesses, you don’t spend a ton of time thinking about your procurement costs. At some point, somebody somewhere set up a plan to order toilet paper and paper towels annually, so that’s that. This is usually true for every purchasing category.