Initiatives and Strategies to reduce cost n increase value deliverables in Procurement and SCM

Move Supplies Faster
If you can find ways to expedite shipments from suppliers, you can order closer to the time you need the supplies. Ordering far in advance can incur warehouse costs, because you have to store them so that they'll be available, and products are more likely to get lost or damaged. In addition, examine whether you can shorten the time it takes you to transport supplies from where you receive them to where you need them. Transportation from the supplier and within your company can add days or weeks to your supply chain and increase costs

Improve Space Utilization
It costs you money to keep supplies and inventory in a warehouse. If you conduct an analysis of how well you are using your storage space, you may find that you are paying for too much space. You may also be wasting money paying personnel to search for stored items. A more efficient storage strategy could reduce the amount of space you use and the amount of time it takes to find and pull items. This could result in reduced rent and payroll costs.

Use Multiple Suppliers
If you only use one supplier, you are eliminating competition for your orders. Find several suppliers who can compete on price, and use several of them at all times so you can avoid costly delays in receiving products. If one supplier is out, another may have the items. Using multiple suppliers protects you from spending money for less-than-satisfactory service.

Collaborate, Don't Compete — A true value-oriented supply chain consists of an extensive network of integrated suppliers, suppliers' suppliers, internal supply chain participants and customers, all working together to maximize the value of the supply chain. When you develop relationships with suppliers, it is the mirror image of setting up customer relationships. Just as you want your customers to succeed, you should want your suppliers to succeed, too. Each participant's success and increased value has a positive impact on your supply chain performance as well as your bottom line.

Just as you want your business processes and people to be aligned in terms of goals and strategies and operations, your supply chain partners should be aligned to collaborate and develop ideas for mutual competitive advantage. Suppliers can often be the best source for new ideas on technology, process streamlining, inventory reduction and product design improvements. But making this work requires different methods of developing incentives and monitoring performance for partners. Fortunately, there are approaches to joint risk/reward sharing available that can be incorporated into supplier agreements.

Focus on total cost of ownership (TCO), not price.One benefit of strategic sourcing is that it shifts the focus from looking only at the purchase price to understanding the total cost of owning or consuming a product or service. For significant spend areas, procurement teams at best-in-class companies are abandoning the outmoded practice of receiving multiple bids and selecting a supplier simply on price. Instead, they consider many other factors that affect the total cost of ownership. This makes good sense when you consider that acquisition costs account for only 25 to 40 percent of the total cost for most products and services. The balance (and majority) of the total comprises operating, training, maintenance, warehousing, environmental, quality, and transportation costs as well as the cost to salvage the product's value later on. Identifying the total cost of ownership requires looking at the entire process of procuring and consuming the product or service, something that can only happen with cooperation and input from both the buyer and the seller. Best-in-class organizations do not stop there, however. They also ask suppliers and internal stakeholders the following important question: "How can we work together to reduce the total cost of ownership?"

Establishing a "total cost of ownership" mindset is a goal that the supply management organization needs to embrace and perpetuate throughout the entire enterprise. It will not be easy, however, to convince your company's executive leadership to truly prioritize value over price. Since the global financial collapse in 2009, most chief executives have focused on cost reductions, which they expect will translate to reduced prices.

Put contracts under the supply chain function

Purchasing and procurement teams often negotiate significant potential savings during the sourcing process but never fully realize those savings. The reasons for this vary, but they often include a failure to communicate contract terms to the affected organizations and a failure to monitor contract compliance.

All too often, in fact, the executed contract is filed away in some drawer and forgotten. This is no exaggeration; several years ago, the research firm Aberdeen Group asked supply managers the following question in a survey: "How do you manage your company's contracts?" Their answers were startling. Two thirds of the respondents stated, "We can't even find the contracts, much less manage them."

More companies are moving responsibility for contract management to the supply chain organization rather than leaving it in purchasing, legal, finance, or operations. One benefit of this shift is that it ensures the contracts are collected and maintained in a central repository. The migration of the contract management function to the supply chain organization also allows the supply chain leader to more effectively leverage the company's spend, particularly in the area of services, where there is a great opportunity for cost reduction and risk mitigation.

Optimize company-owned inventory 

The global economic downturn means that more chief financial officers have put inventory on their radar screens, and their financial teams are constantly looking for new ways to improve the bottom line and reduce working capital. Supply chain organizations should therefore constantly review their inventory quantities and strive to keep them at an optimal level.

It's no surprise that best-in-class companies are paying attention to inventory at the highest levels. The "real" cost of holding inventory often is higher than the generally assumed 20 to 25 percent. In fact, recent research reveals that inventory holding costs could represent up to 60 percent of the cost of an item that is held in inventory for 12 months. Those findings included the holding cost of insurance, taxes, obsolescence, and warehousing. Poor planning and forecasting are direct causes of inventories that are out of balance with a business's needs. Accordingly, best-in-class companies also are placing more emphasis on demand planning and forecasting as an additional means of ensuring optimal inventory levels.