Procurement

Methods to cut costs in business

Athena Commercial
July 27, 2021

Bad spend management can cost more than money if not done properly, it can mean services and goods aren’t delivered to the necessary quality or on time.

So many companies are front line focused, with efforts geared towards winning new business and managing existing client relationships. Most companies are aware of their spending and what they are spending money on, but are unsure whether that is the most effective approach or whether this represents fair market pricing.

Spend Analytics is where commercial experts review your spend data and provide recommendations on where you can make better decisions. This deep dive analysis will identify areas where savings can be made, whether by a more effective negotiation, market changes since you bought or by identifying different ways of doing things with different providers (or internally with different technology!).

Further cost reductions can then be achieved by re-negotiating the terms of a contract, making improvements to operational processes or by harnessing the use of data and technology. Having the right data available at the right touchpoints within your organisation powers cost visibility which will achieve cost reduction, higher ROI and increased profitability.

Strong, clear and cleansed data is the fuel to enable a full 360 view of products, materials, suppliers and services in a business. With this data in place and a clear view, any business can then make the best decisions, align tasks and develop new ways to reduce costs in the right places.

Let’s take a look at some of the key strategies to implement these changes:

Challenge what you have against what you need

It helps to conduct an independent review of all the products and services uses by your business and map where they are needed and why. Once you have worked through what your key products and services are, analyse the extent of the need and what it relates to. Review whether the solutions you have in place are tailored to your desired operating model or whether your operating model is driven by the suppliers standard offerings.

Cleanse and Manage your data

You must build and manage your data model for a full and clear view of your operations, enabling you to make the right choices, avoid manual workloads and focus on crisp business intelligence. Once you have set the data quality rules, you need to identify the sources of information within your business. Do you have one ERP that captures all of your spend, or is spend data in separate systems and spreadsheets that needs cleansing and consolidating.

Read & Manage your contracts

Do you have clear visibility of the contract terms you have signed your supplier contracts on? It helps to have visibility of supplier contracts terms and also to negotiate them prior to agreement rather than blindly sign up too standard terms and conditions.

Do you know when your contracts end, your termination rights or you auto renewal clauses? If contracts have automatic renewals or automatic price increase clauses you can save money just by being on the front foot and avoiding those.

If contracts haven’t been reviewed for a number of years, or your requirements have changed then there should be some scope to re-negotiate and deliver better solutions and cost savings. It is good practice to have excellent storage and contract management software for your suppliers. Things change, businesses change, people and technology change and we need to have the systems and processes in place to readily adapt to these changes.

Outsource only where it makes sense

You may have legacy creaking IT architecture or have in-house teams who have seen technology rapidly change their functional roles. It helps to review your business (and customer) requirements and develop operational structure and supporting supplier contracts that meet current requirements and are agile to change.

Outsourcing can be a great strategy to save costs and workloads, but it isn’t always the answer. Where there is a clear business case that makes operational and commercial sense then transferring your business to external parties can be very effective. A benefit of outsourcing is that your business gets access to people with a wealth of expertise and market knowledge.

It pays to have the right support in place for ensuring supplier contracts are negotiated and managed well. Sourcing, Negotiation and Contract Reviews can be time consuming, and having this managed by specialists will free up time for your staff and deliver more effective results quicker.

Challenge operational costs

Planning appropriately when it comes to procurement will reduce costs for your business by ensuring that resources are used in the best way and the right time in the process.. Once done, it is important to then manage this plan operationally and review with your internal teams to ensure all is on track. If it isn’t, make noise because a good deal unmanaged can quickly become a bad deal.

Finally, saving costs in the right areas ultimately saves time. This time can be spent in other areas of your business such as managing relationships with your suppliers, develop new ideas or even explore new markets and new strategies. Plan to win.

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