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4 Steps To Maximise the Value Delivered From Your Procurement Activities

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4 Steps To Maximise the Value Delivered From Your Procurement Activities

Have you ever struggled to realise cost savings to your bottom line?

Would you like to deploy a proven 4 step process that will ensure that your initiatives translate into pounds, shillings and pence in your P&L?

If you can answer ‘Yes’ to these two questions, I’ve got great news for you – you’re in the right place.

Maybe you’ve run major procurement activities and negotiated great deals only for these to be diluted over time.

Or perhaps you feel that you’ve achieved the best deals possible and yet still have a significant gap in achieving your savings targets. Alternatively, you think you’ve hit your targets but you’re still under pressure from your boss because of the ‘noise’ that’s coming out of the business that the new suppliers are not fit for purpose.

These are stories that I’ve seen time and time again and yet it can be so different.

We all want to feel that our efforts are not in vain. We all want to feel that we are contributing to the success of the business. When we finalise a deal with a supply chain partner, we want to ensure that that deal is great for all concerned – that each party is tied together in a common bond – to realise value on all sides – the true Win Win scenario.

So why is it that so many cost management initiatives fail to realise the expected bottom line impact?

Why is it that even when these initiatives succeed, in many cases, significant extra benefits are ‘left on the table’ by being focused too heavily on just one dimension.

Questions such as these have been the catalyst for the work that I have undertaken over the last 15 years, where I have been researching, adopting, testing and evaluating many of the so called ‘golden ticket’ approaches to achieve increased efficiencies and ultimately cost reductions.

I’ve worked across multiple sectors and been engaged by many FTSE 100 companies and mid market corporates across the UK and overseas.

My background is financial services and more specifically change management. I’ve always been fascinated by the impact that people have on the outcome of any activity, and especially how performance is constrained by the success or otherwise of engaging people within a change process.

I’ve worked in companies that have had great leadership and a fully engaged workforce and have been part of delivering massive change and amazing growth in a short period of time.

I’ve also been involved in organisations that have relatively simple improvement opportunities but have failed to achieve them because they haven’t applied the four essential elements to realising bottom line benefits.

I have created the C.O.S.T. Optimisation FormulaTM to emphasise the interdependences of each of the four parts;

formula

So, why do I state that this is a ‘formula’?   ‘C’ x ‘O’ x ‘S’ x ‘T’ = ‘O’ (Optimisation)

‘C’ x ‘O’ x ‘S’ x ‘T’ = ‘O’ (Optimisation) Click To Tweet

Well, in simple terms, Optimisation is determined by the cumulative effect of the benefits achieved from; creating optimal internal processes multiplied by aligning your supply chain, multiplied by your ability to drive the change in behaviours across your business, multiplied by the success you have in tracking benefits to the bottom line.

The effect can be and is often significant – let me explain with a simple exercise;

Let’s say that Optimal = 3, Average = 2, Sub-optimal = 1, what would be the result if we achieved the average performance across all four factors?

Remember the formula – C x O x S x T = (O) Optimisation

Average performance – 2 x 2 x 2 x 2 = 16

What if we optimised each factor, what would be the impact then? Well, let’s take a look;

Optimal performance – 3 x 3 x 3 x 3 = 81

Equally, either ignore of under estimate just one area and the difference is staggering;

Example 1 – 1 x 2 x 3 x 2 = 12

Example 2 – 3 x 3 x 3 x 0 = 0

I’m sure that you get the point by now. The difference between average and optimal isn’t a factor of 1, it’s 500% different. Now are you starting to see how a really great deal can fail to deliver the anticipated benefits?

I’ve written a book, The C.O.S.T. Optimisation Formula, that delves into each of these areas in more detail illustrates each point with specific examples. I’ve also created a Masterclass where I explain more about the formula and the C.O.S.T. Optimiser Programme that I have developed to help you implement structured approaches to ensure that you have each of these four elements fully covered within your organisation.

 

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