Deloitte’s Chief Procurement Officer Survey 2017 holds an important conclusion: for 79% of the surveyed organizations savings delivery remains the most important objective for procurement. At the same time it’s acknowledged that it becomes harder and harder to meet with the objectives. Little by little all low hanging fruit has been harvested and consumed. The ladders to reach for the fruit have to be ever longer. It looks like we need new ways. The good news is that they are available.
Traditionally professional procurement organizations are organized around categories. Category managers are working with business representatives and – in most cases – with suppliers, to discover opportunities to realize the savings targets for their categories. However, it is difficult to find these opportunities year after year. Still, feasible opportunities are available in many cases. The last few years we have supported our customers in improving their margins with 15 to 30%. In case you feel a skeptical frown slide across your face when reading these percentages, please continue reading!
Cost management can be approached from a different angle: product-based instead of category-based. Instead of looking for generic options to squeeze more savings from a spend category, we are looking for opportunities to structurally improve the margin of a specific product (or product line). Basically there are two places to search for these opportunities. In the top-line: are their possibilities to sell products at higher prices by increasing the value perception at customers? Or in the bottom-line: are there possibilities to lower the cost price of a product? Techniques that we typically use for this are lean product development, value engineering and target costing.
These techniques require an interdisciplinary approach with involvement of, among others, product management, engineering, manufacturing and procurement. In some industry sectors, like automotive and consumer electronics, these techniques are already commonplace for decades. For many other sectors we see these approaches emerge as the next big thing in savings delivery.
Obviously it takes knowledge to apply these methods successfully. What is the logic behind these methods? How to introduce this way of working into your organization? Which tools, templates and best practices are available to provide a flying start? To guide organizations for which this is uncharted territory, we offer training programs in cost engineering, value analysis, target costing and fact-based negotiations.
Are you curious to learn how we can help train and coach your team to obtain the desired margin improvement? Please contact us!