Saving a Start up - Spend Management Contribution

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At the critical midpoint of a start up when cash is king and revenue growth and scale developing the assistance of spend management professionals can be critical for immediate needs and to insure that scale can be achieved on time while spend as a % of revenue is reduced and margins increase.

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Saving a Start up - Spend Management Contribution

  1. 1. 5 Steps that Purchasing Professionals can put in place to save a start up by reducing total costs to create strong and sustainable margins. Bill Kohnen Investment Forum Discussion
  2. 2. Purchasing Role in A Startup  Purchasing certainly does not create the start up  Start Ups certainly do not need an optimized purchasing process  Companies with quickly accepted products and massive revenue growth should not worry about Purchasing except when ready for IPO and need for SOX compliance  Only real concern is function of purchasing things should be efficient So why bother ………………………….. Bill Kohnen Investment Forum Discussion
  3. 3. Purchasing Role in A Startup So why bother …………………………..  Generally most startups do not go from product creation to massive revenue growth instantly  Cash becomes king at some point in most startups journeys  At the same time start ups need to plan for scalable growth when success comes  In early development phases focus on efficiency of purchase process and development cycle combined with infusion of investor capital can lead to higher cost purchase choices.  Also in early development founders relationships are key to getting resources which is vital in beginning. However, as growth comes different set of criteria can be used for sourcing choices. At the mid point of the cycle from beginning to IPO is when the contribution of a professional purchasing employee or consultant can have an immediate impact as well as aligning spend decisions to obtain optimum total purchase cost and improved margins with growth. Bill Kohnen Investment Forum Discussion
  4. 4. The Steps: Proven and Repeatable with High ROI Obtain total spend profile using actual payables data. 2. Sort data by category and add # suppliers and transactions. 3. Visualize data 1. 4. Set Strategy based on proven sourcing approaches. 5. Execute Strategy and collect 3 rounds of savings. Bill Kohnen Investment Forum Discussion
  5. 5. Step 1: Obtain Total Spend Profile using actual Payables Supplier/Payee Product/Category Total Spend Total Transactions Method of Payment Pay Terms Corporate Landlord Inc. Building Space 5,000,000 10 Invoice Contract 15 days Computer Hardware Corp Servers 3,200,000 200 PO 30 Days Business Process LLC Labor and Call Center 3,000,000 12 Contract 10 Raw material Corp Production components 2,500,000 500 PO 15 to 30 Facility Management Service Building Maintenance 1,200,000 1 Contract with PO Quarterly in advance Consolidated Professional Service Inc. Legal and Marketing 700,000 8 50% contract invoice Travel Agent Inc. Travel 450,000 900 Enterprise Software Giant ERP and CRM 300,000 1 Indirect material Warehouse Office Items 125,000 1000 Bill Kohnen Investment Forum Discussion Expense 30% Corp Credit Card 70% Personal card Mixed PO Prepaid for Year 40% PO, 35% Invoice no contract, 25 Expense Mixed
  6. 6. Step 2: Sort Data By Category and Add # Suppliers Product/Category Total Spend Total Transactions Total Suppliers Method of Payment Pay Terms Building Space 5,000,000 10 3 Invoice Contract 15 days Production components 4,500,000 500 35 PO 15 to 30 Servers 3,200,000 200 1 PO 30 Days Labor and Call Center 3,000,000 12 1 Contract 10 Building Maintenance 1,200,000 1 1 Contract with PO Quarterly in advance Legal and Marketing 900,000 8 3 50% contract invoice Travel 550,000 900 4 Expense 30% Corp Credit Card 70% Personal card Mixed ERP and CRM 500,000 4 4 PO 30 Prepaid for Year Office Items 225,000 1000 5 40% PO, 35% Invoice no contract, 25 Expense Mixed Bill Kohnen Investment Forum Discussion
  7. 7. Step 3: Visualize Data Top Supplier Spend 5,000,000 3,200,000 3,000,000 2,500,000 1,200,000 700,000 Corporate Computer Landlord Inc. Hardware Corp 450,000 300,000 Business Raw material Facility Consolidated Travel Agent Enterprise Process LLC Corp Management Professional Inc. Software Service Service Inc. Giant Bill Kohnen Investment Forum Discussion 125,000 Indirect material Warehouse
  8. 8. Step 3: Visualize Data Spend By Category 5,300,000 4,500,000 3,200,000 3,000,000 1,200,000 900,000 550,000 Building Space Production components Servers Labor and Building Legal and Call Center Maintenance Marketing Spend Bill Kohnen Investment Forum Discussion 500,000 Travel ERP and CRM 225,000 Office Items
  9. 9. Step 3: Visualize Data Category and Transaction Level 5,000,000 1200 4,500,000 1000 4,000,000 3,500,000 800 3,000,000 2,500,000 600 2,000,000 400 1,500,000 1,000,000 200 500,000 0 0 Office Items Travel Production components Servers Total Spend Labor and Call Center Legal and Marketing Total Transactions Bill Kohnen Investment Forum Discussion ERP and CRM Building Maintenance T r a n s a c t i o n s
  10. 10. Step 3: Visualize Data Category and Total Suppliers 5,000,000 40 4,500,000 35 4,000,000 30 # 3,500,000 25 3,000,000 2,500,000 20 2,000,000 15 1,500,000 10 1,000,000 5 500,000 0 0 Office Items Travel Production components Servers Total Spend Labor and Call Center Legal and Marketing Total Suppliers Bill Kohnen Investment Forum Discussion ERP and CRM Building Maintenance S u p p l i e r s
  11. 11. Step 4: Set Strategy Category Spend Supplier Transactions Strategies High Few Few Strategic Level Review. Alternatives Longer time to Build Direct Negotiations High Many Many Consolidate to Leverage Spend Standardization Automate Process Low Many Many Automate Samples Strategies but other approaches available. Bill Kohnen Investment Forum Discussion
  12. 12. Step 5:Capture 3 Rounds of Savings  Generally First Round Savings Comes Simply From greater visibility, aligning pay terms and simple process improvements  Second Round Savings from optimization demand and introduction of alternatives and more detailed business process optimization  Third Round Savings with fully realizing consolidated leverage, alternatives with demand and process optimization Savings By Round 30% 18% 7% 1 2 Round Bill Kohnen Investment Forum Discussion 3
  13. 13. Summary  Immediate cash conservation  Quickly start to capture 3 rounds of savings  Align process for scale  Direct impact on margin growth Bill Kohnen Investment Forum Discussion

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