It’s getting to that time again when procurement folks, egged on by their finance colleagues, cast their eyes towards the next calendar year and start to put together a savings pipeline. For some organisations this in an ongoing iterative process, for others it’s typically an annual cycle. Whichever way you do it, here are 6 tips for building a savings pipeline.
1. Tackle at least a third of your managed spend. It’s good practice to address most areas of spend at least every 3 years, so therefore at least a third should be looked at each year. In many cases, this should be more frequent, so treat a third as a minimum.
2. Don’t be constrained. It’s easy to dismiss for example spend that’s under a long term contract, but although a long term contract may restrict what you can do, it doesn’t necessarily mean there’s no room for cost reduction. Savings can take many forms including demand management, efficiency improvement etc, so it’s not all about reducing prices. Equally don’t be constrained by what has or hasn’t been done before. Think creatively.
3. Look for areas of spend where there have been changes. These could be commodities where supply & demand has fluctuated, or it could be supply markets where there has been recent consolidation or innovation. The change could also be internally driven like a dramatic increase in demand. Change often brings opportunities for cost reduction.
4. Engage with stakeholders and other areas of the business. Ask them for ideas and discuss your thoughts with them. As well as generating more opportunities, communication and inclusion at the front end should help with buy-in further down the line.
5. Be realistic. Treat the pipeline like a funnel. Just as a sales funnel narrows down, expect your savings funnel to do the same. Not every idea will come to fruition as a saving. Therefore, apply a probability to your ideas and make sure you have enough to ultimately reach your savings target. Also be realistic about timescales. Allow sufficient time for implementation and make sure projects are started in good time in order to maximize the return within the year.
6. Track how accurate your forecast is. Your pipeline will produce a savings forecast. We all know that some people are prone to be too bullish about what can be achieved while others will naturally “sand-bag”, but in order to improve your forecasting capability for the future, keep a track of how your forecast evolves over time and how it compares to the realized numbers when they start rolling in. If you’re spot on, this will add credibility to your forecast next year, if you’re not, then find out why and figure out what you can change to become more accurate.
So have fun building your pipeline and creating a savings forecast, and if you'd like the convenience of doing this all in an on-line tool where you can also then manage your projects and report your realised savings then of course we'd be delighted to hear from you here at Provalido!