The Hidden Potential in Your Services Spend
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How to find and capture savings in your recurring vendor spending. In depth view.
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The Hidden Potential in Your Services Spend
- 1. The Hidden Potential in Your Services Spend All material © copyright 2009 Berlin Pacific, all rights reserved
Editor's Notes
- Thanks for having me here. It is an honor to give this talk. According to the conference guide online you’re here so - “you can discover and/or share in a solution to these challenging times that allows you to concentrate effort and investment while reducing waste, conserving cash and improving service levels throughout your organization and supply chain.” And that’s exactly what this talk is about. We’re going to talk about how managing vendor costs can be made more effective with increased visibility in to spending, and give an example of one vendor category. Most of our experience is with recurring services. From what I understand, the Theory of Constraints is all about increasing profit throughput. We know exploiting the constraint involves reducing inventory. I would say that smartly managing costs of all vendor good and services increases profit throughput and is an important part of exploiting the constraint. Looking a little more at your invisible inventory of vendor services may be higher priority than some people realize. Most companies of course intensively manage spending on many of their vendors, but we’ve also found there are secondary spend categories that can be more intensively managed.
- Basically you can have your cake and eat it too if there’s a misalignment. These are all obvious enough points. But let’s see how this plays out and affects organizations. People may feel the only way to improve is to risk disruption, which isn’t always the case.
- Why is nothing done about lack of visibility? Obviously people are doing things in this fog that do manage costs. 60 people is the low end size. The whole process can take an expert 60 hours over a few months for a sixty person office
- Obviously there are many categories where this is not a problem. So we have some bottom line impacts, as well as some organizational impacts of poor visibility in specific category. You don’t have the time and the information to do better.
- This is a good example as it applies to all companies. Telecom is defined as all recurring monthly charges for voice and data services Spending is use it or lose it. There is no inventory piling up. There can be hundreds of services per location.
- We’ve found when negotiating with telecom companies that we typically know more about what the client is paying for than the account rep does.
- Let’s table for a minute how to find the resources to solve the problem and focus on the process. I can’t emphasize enough the importance of the inventory step. If you don’t know what you’re buying and why and what it costs, you can’t progress.
- Visibility is key I can’t emphasize enough the importance of the inventory step and visibility. If you don’t know what you’re buying and why and what is costs, you can’t progress.
- Decision who have the authority to reduce costs by approving new contracts and consolidation or termination of services are busy. They need to get someone else to give them the information they need to make cost cutting decisions.
- The problem of course is that neither one of the people in IT or accounts payable particularly wants to do this or is good at it. But anyone motivated can do it – it isn’t hard. (Use a spreadsheet to plug in numbers from quotes. Determine what targets numbers you want. If you like hand out a sheet with a list of demands – you want this price and these service levels for X. Or you can leave some of the desired targets blank and let them lowball themselves.) A lazy work around is when it come times to re-sign contracts is to try to force the vendor to explain the details of your bills. Unfortunately they probably will blow it off.
- Ideally the expert won’t be a sales rep, but if used properly they can help. Obviously you want to make sure the expert can guarantee some kind of results, so you don’t end up paying someone to tell you you’re doing a great job.
- We’ve done free reviews for several companies. We found cost saving and then implement them for our clients. Here are two results.
- There are other recurring services which can offer opportunity. You can re-structure spend and save money. Not all categories will be a complex as telecom and offer the same high savings. But we’ve noticed that client spend varies widely even with a simple to analyze area like Credit Card Processing charges. I was at a conference where a presenter mentioned purchasing had applied basic purchasing techniques to the marketing people’s Print spend and the company had seen very high savings. The person next to me mentioned they’d done the same thing. Print is easier to manage, yet often basic techniques aren’t applied in non-core areas.