Supply Chain Management: The 3 Relationships Procurement Executives Must Build to Support Cost Reduction Efforts

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Supply Chain Management: The 3 Relationships Procurement Executives Must Build to Support Cost Reduction Efforts

Originally Published in Supply Chain Management Review | April 11, 2016 | By Paul Mandell

The more resource-constrained a procurement department, the more likely it is that the overall business may be sensitive to cost.

Managing costs with limited resources poses a particularly vexing challenge to corporate procurement leaders. The more resource-constrained a procurement department, the more likely it is that the overall business may be sensitive to cost. However, a lack of procurement resources can make it even more difficult to achieve tangible cost savings, given shrinking buying power, inability to invest in spend analytics, or for other reasons.

Here are three suggestions to help those who find themselves in such circumstances:

1.    Build Trust with Non-Procurement Peers

As a first step in optimizing spend, procurement executives need to understand where their peers throughout the business are spending money, what kinds of contracts exist, and what future spending is anticipated. To achieve this, procurement leaders need help from their peer executives in other departments.

However, those peers understandably may be leery of providing information or support to procurement, out of fear of losing control over relationships with suppliers or sabotaging the quality of necessary products or services. To overcome these fears, procurement leaders need to find a way to build relationships of trust with their executive colleagues outside of procurement.

As a procurement executive seeking to build such relationships, begin by taking the time to understand the functions of other departments, and communicating your interest in making life easier and more efficient, rather than flagging a one-dimensional cost-reduction mission. Ask for pain points, including what makes your peers’ lives most difficult, rather than focusing purely on achieving cost savings. If you focus on learning about the work of your peers, and seek to ease the procurement experience, the savings will come.

Building productive relationships across multiple business units often provides another significant benefit. Once you have a strong rapport with peers throughout the company, it is increasingly likely that you will gain insight into potential economies that were not otherwise obvious to you. By digging deeper into the various categories of spend within multiple departments, you will inevitably find opportunities to group spend or other efficiencies that can boost your buying power.

2.    Gain C-Suite Support

Another critical method for achieving cost savings is gaining buy-in from the top. Even if you cannot achieve greater investment for procurement from the CEO or other C-suite colleagues, your company’s top brass can help you centralize spend by holding other corporate executives to new procurement requirements that give you more control.

Spending limits and related protocols designed to reduce cost may be good in theory, but they may be ineffective without the means to hold decision makers accountable. By gaining support from the C-suite to enforce critical procurement rules, you will be much more likely to achieve your cost-reduction objectives. Just be sure to follow-through on your own obligations—including deadlines for reviewing draft contracts and other guarantees that you may make to other executives about the work of procurement—or you may lose that valuable CEO support.

3.    Tap Expertise from External Partners

Finally, when you run out of opportunities to leverage your own spend or recognize internal efficiencies, consider finding external partners to help, including purchasing cooperatives and even existing suppliers.

In some cases, such entities may have much higher spend than your business, which they can leverage to achieve better results for you—even if supporting your spend in such ways may not officially be part of their charge.

Good external partners who value your relationship may be willing drive more value for you, including by giving you access to benefits they have negotiated on their own behalf—for example, free shipping, better payment terms, or simply lower costs for goods and services you may need.

Building Relationships

A lack of resources can be a major source of frustration for procurement executives, adding greater difficulty to an already challenging arena. However, by leveraging internal and external relationships creatively, today’s procurement leaders may have more opportunities for cost savings than they realize.

Editor’s Note: Paul Mandell is a founder and the chief executive officer of Consero Group, an international leader in the development of invitation-only events for senior executives.