Part I of the Managing Indirect Spend Book Excerpt Series: Implementing Process Changes
The following article is excerpted from the book Managing Indirect Spend, by Joe Payne and William R. Dorn, Jr. Published by John Wiley & Sons, Inc. Release date: 19 October 2011. Click here to order from Amazon.com.
Managing indirect spend categories can be one of the most politically sensitive subjects in your organization. This is particularly true when senior management has historically taken a hands-off approach in directing the effort, and the end users that work with suppliers on a daily basis feel that it is their right to control the spend. Many times they have also convinced themselves that over the course of time they have optimized their choice of suppliers, and that a better price at the required service levels is not available in the marketplace.
Attempting to improve upon the status quo can be very difficult. Even if senior management supports the sourcing initiative, you may find that they have developed some of the supplier relationships themselves that you have been tasked with reviewing, and getting them to agree to changing suppliers can be difficult even when the numbers support your decision.
Ultimately, you will find that identifying suppliers willing to provide better services at lower prices is more than likely the easiest part of managing indirect spend. Getting internal support and aligning efforts to effectively execute the cost reduction strategies you uncover, in the face of political considerations and end user misconceptions, tend to be the primary challenges. Unfortunately, many people entering this type of supply chain review do not realize these challenges await them until it is too late to effectively manage them.
One stage of the strategic sourcing process that is often overlooked, and which can go a long way toward managing those political difficulties, is the project kickoff. Regardless of your role within the organization, it is important to make sure that you are not operating in an isolated bubble. Others should develop an understanding of the goals and objectives of your initiative, from the executive team to end users, and many in between.
The executive team should be made aware of the initiative, and should support it. The reason is simple: change does not always come easy. Over time, you will find that the biggest roadblock to achieving savings is not the supply base; it is a rare occurrence that a supplier has offered the absolute best price or has developed the most efficient process. In many cases, thegreatest impediment turns out to be implementing change within the organization. All too often purchasing or finance teams will uncover an opportunity to reduce costs substantially and naturally come to believe that letting the facts speak for themselves will be all it takes to make the necessary changes. However, change does not often come easily, and even with the best business case you will find that having the support of the executive team or other higher-ups within the organization will pay off.
While you probably will not get the attention of the executive team on a weekly basis, try to establish a monthly meeting to report status and present findings. At the very least, you should be providing a written status update to the team on a regular basis. This way, if you run into a roadblock that requires their attention, they will already be aware of progress to date.
End users and other interested parties should be made aware of the initiative as well. As we will discuss later, end users have a stake in the project, as they are dealing with the day-to-day realities of working with the supply base. Try to form a cross-functional team that includes members of several different departments: finance, purchasing, operations, and other affected parties. Having a cross-functional team allows you to get the perspective of a diverse group within the organization and aids in consensus building as projects move through the sourcing process.
Depending on the scope and breadth of the initiative, you will likely assign other resources to help collect data and perform research. These resources could include members of the cross-functional team, end users, or others within your organization. Resources working on projects and the cross-functional team should meet at least bi-weekly. During these meetings, members of the team can report status, troubleshoot issues and solicit advice on current initiatives.