Do You Know the Difference Between Strategic Sourcing & Category Management? Capturing MORE Than Savings!       

 As Strategic Sourcing professionals we were all taught that Savings was our most important metric.  Organizations that have not yet reached the Value Creating / Category Management level of maturity are most likely STILL mostly measuring and reporting price/cost savings.  By doing this, you are perpetuating the notion that you are all about Savings, with little regard for what is most important to your “customer” – your Stakeholders.   As internal consultants, it is our job to ensure that we are focused on what is important to our Stakeholders (their Value Drivers) and to capture ALL the benefits we achieve on their behalf which go WAY beyond cost savings. 

So why is it important to capture business benefits:

• Ensures achievement of Stakeholder Value Drivers
• Sells Strategic Sourcing’s services beyond price reduction
• Builds credibility with your Stakeholders
• Creates a “pull” within your company as opposed to you always “pushing” your process(s)

 

Here are a few examples of benefits beyond cost savings:

• Improved service levels or quality of service
• Reduction in total cost of ownership
• Getting the “A” team from an external consulting firm
• Elimination of unplanned expenses
• Reduction in implementation timelines
• Reduction in processing times
• Increase in Customer Satisfaction
• Increase in Employee Satisfaction
• Reduction in Risk

 

There are various classifications of business benefits (in order of importance):

• Value Drivers Achieved – Achievement of Value Drivers is the most critical benefits that can be identified. These may be quantified in other categories but should be highlighted as an achievement
  • Examples
    • Access to new technology and innovation in the market will provide XYZ with a competitive advantage
    • Standardization of process and planning to enhance responsiveness to market needs
• Hard Savings – Hard Savings are able to be tracked as a reduction in a budget or direct impact on the financial statements
  • Examples
    • Reduced additional costs such as unit cost, transaction cost, overhead costs, or transportation costs
    • Elimination of disposal costs, extension of warranty, or reduction in maintenance fees
• Soft Savings – Soft Savings can be calculated but cannot be tracked to a budget or directly to the financial statements
  • Examples
    • Reallocation of headcount within a business unit that does not reduce the budgeted headcount.
    • Delaying or postponing payments to suppliers (extension of payment terms)
• Cost Avoidance – Cost Avoidance are costs that were not planned for in a budget but were eliminated through the Sourcing Process=Elimination of early termination fee
  • Examples
    • Elimination of early termination fee
    • Elimination of price escalators such as inflationary indexes
• Quantitative New Benefit – Quantitative New Benefits are benefits that can be measured via a KPI or other performance measure but are not tied to a cost
  • Examples
    • New feature that increases employee satisfaction rating
    • Reducing the implementation horizon from 8 months to 6 months
• Qualitative New Benefit – Quantitative New Benefits are benefits that can be measured via a KPI or other performance measure but are not tied to a cost
  • Examples
    • Reducing the risk associated with a project or product by introducing risk mitigation processes with a supplier
    • Providing priority of supply (allocation priority) in times of shortage

 

Please note that Capturing Business Benefits is how you claim victory for your hard work.  It is vital that you get sign-off from your Stakeholders in advance on what victory means (end goal) and from Finance on how it will be measured (the calculation).  Here is how Finance can help:

• Provide access to information
• Be accountable to ensure savings are hitting the bottom line
• Assist your team in tracking results quarterly
• Help ensure that Demand Management Savings are being realized
• Act as a champion and an advocate

 

As you are working through your next Sourcing event, start to track ALL the benefits you are achieving for your Stakeholders.   This will help both you and THEM that you are way more than just cost- cutters.  You are actually, valued internal consultants 😊!

Let us know what you think and join in the conversation . . . . . . .