Supply Base Management
The Value
Organizations that have implemented supply base management programs often reap a 5 to 10 percent reduction in the spend base addressed. Depending on how aggressively a buy is managed at the time of program implementation, savings of 15 to 20 percent are not unrealistic. By putting measurements and processes in place, organizations can realize a 3 to 5 percent reduction on a year-over-year basis. These savings in turn can lead to a decrease in COGS, working capital and potentially, SG&A. Improvements in operational performance yield additional savings as well as enhanced asset utilization. These programs yield powerful results and can be equally effective for both direct and indirect spending.
The Process
Consider that every after-tax dollar saved in the purchasing process applies directly to the bottom line. Contrast this with the amount of revenue lift required to achieve this same impact on the bottom line. Although most of the organizations that have gone through this process have approached it in unique ways, those that have been most successful often employ these common tactics:
Executive sponsorship to influence the many areas impacted by the supply chain as well as to develop strategic relationships within the supply base
Purchasing/commodity strategies to specify opportunities for performance improvement and to highlight opportunities to leverage supplier capabilities
Input/involvement from cross-functional teams to drive solutions that address total costs and collective satisfaction in all customer requirements
Supplier evaluations that move beyond price to focus on total cost and supplier alignment with strategic objectives
A shift away from executing a project towards executing a process to drive year-over-year savings
Depending on organization complexity, spend complexity and information availability, these initiatives can typically be rolled out in three- to six-month cycles, but ultimately program success will be measured in years.