It always makes me shudder when I hear of negotiations or relationships that are becoming fractious as a result of the dreaded “cost reduction” conversation. I’ve heard countless such recollections over the years, but during the current challenging times, I thought I’d share a few ideas on potential approaches to reduce expenditure without having to resort to renegotiating price.
A lack of internal alignment?
The challenge that affects many organisations is that there is typically insufficient intimacy, engagement and alignment between those that can be loosely described as the “internal customer” and those who are tasked with procuring and negotiating the desired goods or services. Engagements are event driven, project like in nature and have defined start / stop gates that provide a degree of control, allegedly. Yet sadly, the engagement is all too often viewed as a task and those that are responsible for the procurement activity have a fundamentally different definition of success from those who are “consuming” the services (e.g. the CIO). Once the task is “complete”, the various stakeholders part company and regroup often years later when there is a renewal imminent, or the deal is little more than a “box of broken parts” that needs to be fixed urgently.
Similarly, the measures of success are vastly different. Procurement often views the achievement of saving targets and the contractual elements as critically important, whilst the CIO is likely to be losing sleep over service quality, innovation, the working relationship and so forth.
The reality is that all of these areas are critical and like any great recipe, the order, ratio and treatment of the ingredients has a massive bearing on the final outcome. And we mustn’t forget that ultimately the outcome must meet the consumer’s requirements with commercially acceptable terms.
Reducing costs whilst maintaining your supplier relationships
Regardless of the position within the contract lifecycle, there are always cost reduction options available. With many organisations looking to reduce costs having complicated operational and financial constraints, the following might provide a little food for thought: