{"id":10725,"date":"2021-03-29T01:04:10","date_gmt":"2021-03-29T05:04:10","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?page_id=10725"},"modified":"2021-10-19T09:53:59","modified_gmt":"2021-10-19T13:53:59","slug":"procurement-cost-reductions","status":"publish","type":"page","link":"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/procurement-cost-reductions\/","title":{"rendered":"Procurement Cost Reductions"},"content":{"rendered":"

Procurement Cost Reductions Maxed Out?<\/h3><\/div><\/div><\/div>

PurchTips edition #341<\/p>\n<\/div>

You\u2019ve Reduced Costs To A Bare Minimum \u2013 Now What?<\/h4><\/div><\/div><\/div>

When it comes to procurement cost reductions, it is possible to get near a point where further cost reductions just aren\u2019t possible. Prices just won\u2019t be able to be compressed much, if any, further.<\/p>\n

In a profession that still measures its biggest contribution to corporate success via cost savings calculations, this can be disturbing. After all, if you\u2019ve done such a great job at getting costs down to a minimum through your work in previous years, a year with no new cost reductions might make you look suddenly ineffective.<\/p>\n

Well, if you\u2019re fortunate enough to reach this point, you shouldn\u2019t look bad. And you shouldn\u2019t continue using less mature approaches for a more mature function. Here are two ways you should change your procurement approach if you\u2019ve maxed out your cost reductions:<\/p>\n

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  1. Change your measurements.<\/strong>\u00a0When measuring procurement cost reduction, you compare a new, efficient price with an old, inefficient price. But, if after years of work, you\u2019ve proven that your current price is optimally efficient, you should place more emphasis on benchmarking your prices (or the percentage change in your prices) with an index for each major category of goods or services you buy. Cost reduction demonstrates how much better you\u2019re doing than how you used to do. Market benchmarking demonstrates how much better you\u2019re doing than the rest of the world.<\/li>\n
  2. Focus on supporting revenue growth.<\/strong>\u00a0When you\u2019re focused on cost reduction, you\u2019re focused on increasing the profit on a stagnant amount of sales. Instead of that focus, immerse yourself in the vision that senior management has for growing revenue. It might be by improving quality. Or increasing speed to market. Or by introducing a new product or service or applying innovation to an existing one. Regardless, procurement and the supply base can contribute tremendously to these methods by adjusting its focus away from cost and onto these other things.<\/li>\n<\/ol>\n<\/div><\/div><\/div><\/div><\/div>

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