Indirect Supply Management
"In 1998, we spent approximately one billion dollars
on Indirect goods and services, and we set a target to save one hundred million
dollars, or 10% , by 2001. Mark organized and then managed this
effort, and achieved this target before 2001. He put in place an
organization of very good people to manage indirect purchasing.
T.S., Chairman and CEO.
"The indirect purchasing program
was a runaway success -- results
surpassed expectations and stretch goals.
The effort resulted in a cost savings of
15% - 20% for the categories examined and
approximately 12% across the entire range."
D.W., Senior Director,
Corporate Development & Strategy
Methodology
- Analyze overall indirect expense across company
- Pareto view.
- Sort by areas of opportunity.
- Focus on largest areas of spending that are the easiest to change.
- Look for quick hits and gain approval to execute.
- Develop teams by category
- Team members to include actual and potential commodity managers.
- Minimal accounting support
- Required to verify spending and savings
- Determine current supply status
- Spending levels by vendors
- Cost drivers
- Conduct Request For Information (RFI)
- Review quality, delivery capabilities, and cost drivers of current program.
- Study supply chain, looking for consolidation or market opportunity.
- Develop target pricing at same quality and delivery and revised spending level.
- Develop a commodity strategy.
- Gain management approval of proposed targets and specification
changes.
- Obtain "Best and Final Offer" (BAFO) from current supply base.
- Conduct Request For Proposal (RFP)
- Use current and/or other vendors.
- Analyze Results
- Teams make recommendation to management.
- Management Review and Approval
- User groups consulted on proposal.
- Business controllers sign off on changes.
- Implementation
- Contracts signed and savings implemented.
- Budgets reduced to reflect new deals.
- Develop internal resources to ensure ongoing cost reduction.
- Quick Hits = Quick Money
- Groups are often time slow. An alternative is to negotiate with the current vendors
and obtain price
reductions equal to or close to target pricing. Implement best practices contractually. Quick hits
typically obtain 70% - 80% of the targeted savings, but much more quickly.
Most companies want savings in the current quarter or at the latest, the next
quarter. Team dynamics while produce a better outcome, often can not
deliver the results in a timely fashion.
