Lost savings are like lost baggage
I was speaking to a friend recently about agony of lost baggage. But when she got it back she said, she was happier to receive her lost baggage than she was when she gave birth to her child, as her delivery was predictable, however receiving of the baggage was not.
I see this having an uncanny resemblance to the happiness that a procurement professional gets when he is able to recover lost savings! This again, is unpredictable. Procurement / business stakeholders are usually unsure of when and if at all the lost savings can be recovered with directed initiatives.
Fulfillment errands are typically spread all over the organization and forefront employees are less aware of the costly imperatives of inefficient purchasing and disorderly stock control. Many order in excess and over utilize financial plan by paying extra for seemingly urgent services and preventable reorders. According to the Aberdeen Research Group, market leaders achieve, high percentage of hard-dollar cost savings through consistent policies, on-line reporting and active management of procurement, distribution and usage.
Lost saving increases the lower contracted base cost of product if an operating organization does not manage shipping/delivery, storage and person hours, this anyways does not include unknown amount of obsolete items that either eventually is discarded as scrap / waste or even worse stays as part of inventory.
Making it predictable
We have been working with clients to make savings recovery more predictable. There are several types of lost savings and so are the ways recover them. At times these measures are quite category specific. Here we can look at few measures being adopted by organizations across categories.
- Increased Visibility:
If a procurement organization has not been able to control post contracting savings leakages and it is unable to make it to the bottom line of CFO organization it is due to very low visibility, same as in case of lost baggage, where traveler is not able to track it till it has been "found" and forwarded.
Organizations are moving towards automated reporting, which highlights areas of waste in procurement and distribution, this helps in supporting business's decision for ordering in economies and helps eliminate obsolescence, urgent charges, and spending over or "up to budget".
- Targeted Recovery projects:
Increasingly procurement organizations are showing interest in awarding savings recovery projects to specialist procurement services providers with target revenue recovery, projects which cover areas like recovering missed early payment discounts, volume based discounts, freebies, service credits etc. These projects are instituted with diverse outcome commercial models.
- Setting up a category specific "Control Tower":
Category specific control towers are being setup in categories like MRO, facilities, logistics etc, to gain end-to-end control over the spend and create visibility across geographies. Infosys has been working on various such models with market leaders. Typically these projects require low investment and can leverage Infosys' edge platforms to deliver results.
To conclude, organizations today are looking to move towards higher predictability, this is being led by creating more visibility and getting back lost savings is getting more predictable and market leaders are investing in the same, not sure if airlines are also investing in making baggage more visible like tracking of flights in air.
It would be interesting to know your views on above and what you have seen as recent trends, looking forward for an interesting discussion.