Expanding Resources with Shrinking Procurement Teams

By: CovestAdmin
October 23, 2023

In our current market, procurement teams are continuously being tasked to “do more with less.” While inflation continues to slow, the pressure on teams to drive cost-savings has only increased. Continuing rate hikes from the Federal Reserve, rising labor imbalances, and volatile supply chains are only a few factors being juggled in the current climate. These type of obstacles increase the need to utilize all tools at your procurement team’s disposal.

Product savings is the first area typically identified as a cost-savings avenue. However, overall cost savings can be maximized by combining item savings with additional services/benefits. Partnering with strong category programs can free up your team to focus their time on categories that require more active management. Leveraging key and/or existing partnerships can provide expanded access to avenues of savings. Finally, consolidating categories, where appropriate, can allow for more effective management.

 


Leveraging Key Partnerships

It is no secret that savings is the number one item driving conversation in procurement. Obtaining product and category savings isn’t enough, to achieve significant cost-savings, a business should aim to lower the overall operating costs of the company as a whole. This can be accomplished by identifying leveraged programs to maximize the savings within individual categories. Reducing the average cost of goods purchased will, unsurprisingly, drive savings as well. However, identifying additional ways to drive savings is proving more important than ever. Maximizing no-cost partnerships, such as CoVest, can help identify additional ways to drive savings, increase spend visibility, and pinpoint areas of focus without utilizing your team’s time, resources, and money.

 

The rise in savings pressure can help increase the flexibility in which value can be derived from a program. Cost avoidance, SKU consolidation, and OEM partnerships are just a few ways these can be achieved. All these potential avenues for savings require access to, and the ability to analyze, previous and current spend data. Focusing on partnerships that provide visibility and transparency into your existing purchasing can ensure you’re maximizing alternative avenues of savings.

 

How a GPO Can Help Procurement Teams Manage Indirect Categories More Effectively

 

Focusing Attention on Key Categories

As procurement teams continue to juggle more categories simultaneously, we see an increase in the undermanagement of critical categories within a portfolio. While all categories can be viewed as equal, there is a clear understanding that specific categories require and deserve more attention. Identifying these categories can be difficult and may require sifting through large amounts of information. Understanding the scope of indirect purchases at a high level will help clear a murky purchasing situation. This can be achieved by engaging a Group Purchasing Organization (GPO) with a specialty in data management.

As a GPO, CoVest’s Spend Categorization analyses typically have shown anywhere between 500-1,000 unique vendors supplying indirect goods to a typical Member. By utilizing CoVest’s spend categorization process, you can attack categories in a variety of ways. A key benefit is the overall decrease in vendors under management, freeing up your procurement team’s time to focus on more strategic categories. These strategic categories can also be identified within the Spend Categorization, where high-spend and high-volume categories can be clearly seen. Additional benefits can include, but are not limited to:

  • Increased cost savings and additional cost avoidance
  • Increased relationship building with preferred Suppliers
  • Increased compliance with negotiated contracts

 

CoVest’s Proprietary Spend Categorization Engine

Streamlining and Consolidating Category Management

With the increase in savings pressure, there has been a rise in the number of categories being divided into smaller and smaller sub-categories. By allowing more specificity in bids, the goal is to allow Suppliers to focus more on areas of expertise and drive down the overall cost of ownership. In theory, this is the ideal way to approach all sub-categories; allow your Suppliers to focus on one to three key areas without deviating from their “swim lanes.” However, we want to ensure that sourcing does not become too piecemeal. This approach allows the sub-category specificity to remain in categories that genuinely need a higher level of detail or expertise.

An increase in category specificity has, therefore, increased the importance of correctly taking advantage of consolidation where possible, especially in sub-categories that typically can be grouped or supported by similar Supplier partners. Rather than sourcing  Industrial Supplies, Safety and PPE, and Janitorial Supplies separately, these can be combined into a single offering. Combining these products allows more time to be spent on a more specific additional sourcing exercise, such as Bearings and Power Transmission. Continuing the cycle, this can then be grouped with Fluid Power to form another strong category grouping (and so on).

 

Example of Sub-Category Consolidation

Maximizing Your Procurement Resources Today

In conclusion, the decrease in procurement hiring has led to increased stress and management loads on existing procurement teams. Maximizing the time available for your team to manage strategic categories will set your team up for success. By leveraging key partnerships, you can expand the cost savings avenues available to your team within existing programs. Additionally, obtaining clarity on your current vendor spend allows you to shift focus on the key categories that matter, both from a spend and a complexity standpoint. Finally, consolidating vendors can remove additional management needs from your team’s workload. CoVest can help implement these practices and more, by serving as a true extension of your procurement team. As a no-cost partner to our Members, our goal is to allow your team to maximize time where needed and continue to allow you to “do more with less.” If interested in a discussion around expanding resources or would like to explore CoVest’s portfolio, please reach out to our Member Engagement Managers at, memteam@covest.com

 

 

 

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