Procurement in Q4: Six weeks and counting until the quarter closes

With the end of the year quickly approaching, many procurement groups are looking at their performance metrics for the year. For procurement groups that haven’t quite hit their savings targets, December 31st is an unwelcome but inevitable date looming on the horizon.

Before you resign yourself to your current savings numbers, there might be some things you can do in the last weeks of the year to improve your position. Although there is not enough time left to run additional sourcing projects, working with current suppliers and internal stakeholders to get some quick savings are realistic options, especially if you are willing to offer them a little something in return.

Working with Suppliers
While you are looking at your savings performance, many suppliers are evaluating their Q4 sales figures. Your suppliers may be all too happy to work with you through some last minute win-win negotiations. Take the time to do your homework before contacting suppliers though – making sure anyone you reach out to has a Q4 close at the end of December, and avoiding any suppliers where you spent considerably less than estimated. Here are some ideas to consider:

  • If you have a supplier contract that will expire early in 2012, approach the supplier to see if they will offer you any savings to extend the deal for a year before it even expires.
  • Check to see if any products can be replaced with the private label equivalent to save on brand margin (after checking with the relevant business owners of course).
  • See if the supplier has any suggestions based on your company’s purchase history that you can take back to internal stakeholders to manage (read reduce) demand.

Working with Internal Stakeholders
Like suppliers looking at sales figures that may have come in short, many of the departments in your company may be looking at budget overages or ‘close calls’. If you can help them get through the next six weeks in or under budget, they’ll ‘owe you one’ and you can claim the savings against your annual targets. Here are some ideas to consider:

  • With services, see if you can decrease the frequency of their visits without harming their performance: cut contractors down to 4 days a week instead of 5, or space out the visits from cleaning staff a bit.
  • Introduce a ‘choke’ (as long as you can get CFO support) that automatically challenges purchases over a certain size in order to discourage or delay spending.
  • Focus attention on office energy costs (switch to conservation mode) or reduce the amount of safety stocks in your inventory – carefully of course.

In order to have results in the next six weeks, your best bet is to reduce demand. Since there isn’t time to renegotiate, not spending money in the first place is the easiest way to save. Hopefully your organization accepts cost avoidance as a category of savings – and if they don’t this will be a good way to get the dialogue going and prove the value procurement can bring by working with internal stakeholders and suppliers to actively manage spending.

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