Today's procurement teams are being challenged to reduce costs, but in many cases are finding that suppliers have no further room for negotiation.
After round upon round of cost reduction projects, the traditional approaches are running out of steam.
Instead of focusing on reduced costs, procurement teams have been working on reducing the total cost of ownership - moving away from item costs to lifecycle costs, and calculating the best deal based on parameters other than the initial price.
Those parameters may include quality, delivery terms, reliability, flexibility and more.
Total cost of ownership (TCO) isn't new, of course, but what is appearing is a remit to review the TCO of the function of the item being purchased, or even the entire business process, not simply the item itself.
To give you an example, if you reviewed the TCO for a machine and needed to purchase spare parts, you might buy spares that cost more initially but in the long run, because they are more reliable that purchase ends up saving costs.
That's great, but I am talking about taking this a large step further.
Procurement should look at the function of the whole machine, and it's role in the entire process, not just at the item itself.
Would the business be better placed replacing the whole machine with a more economical model, rather than buying spares?
Could that function be outsourced completely?
It can be challenging to think in this way about every purchased item, but we are rapidly proving that it is the best way to drive real impact to the business.
Reduced purchase prices are just the tip of the iceberg in terms of the savings that can be made through a disruptive procurement approach.
How does your team operate?
Are they consistently and visibly contributing to improved profit margins in innovative ways?
Or are they struggling to deliver cost reduction targets set by the business?
Find out more about disruptive procurement and the benefits it could bring to your business by downloading our eBook "An FD's guide to disruptive procurement".
Alternatively, as we are a disruptive procurement consultancy, talk to us!
As a starting point, we'd like to invite you to request a free strategic procurement audit to uncover those areas of your business that would benefit the most from a fresh approach to procurement. Our 3 step approach will determine the priorities and provide an assessment of the added value we could deliver.