Linda Tuck Chapman ONTALA Performance Solutions Ltd.
Strategies and techniques for rapid cost reduction are critical survival skills for Sourcing professionals, their internal clients and their company as a whole. Complex projects executed over months and sometimes years are important, but must be complimented with high-impact projects that generate same year savings.
The following projects are just a small sample from my Savings PlaybookTM developed over 15 years as a Sourcing professional and from the collective experience of Sourcing Interests Group Member companies. Thanks to the generous input from participants at my workshop at Sourcing Interests Group Summit, Amelia Island, March 2011, there are many more great ideas available to Member companies on the Sourcing Resource Center.
These rapid-fire, high return sourcing projects can be completed in 90 days or less.
Time to complete: 6 to 8 weeks
Savings: 5 to 8%
Tip: You’ll absolutely need buy-in from your CIO and the IT senior leadership team. Let them know about the objectives of the project and how they can help.
Create a list of all software maintenance contracts, by service provider, annual spend and % of contract. Develop a company-standard software licensing agreement, including general terms and conditions and a standard percentage for annual maintenance. Concurrently develop a checklist in the event you will be using the vendor’s licensing agreement. Develop an exception approval process that requires senior executive management approval for a higher rate of annual maintenance or non-standard contract terms.
Prioritize maintenance agreements by savings opportunity, and advise the IT contract owner and executive management when you will be contacting the supplier to renegotiate the terms.
Don’t try to renegotiate every agreement, concentrate your efforts on the highest savings opportunities. One success story is annual savings of $4 million on existing contracts in 6 weeks, and setting up the company for successful cost avoidance in future contract negotiations.
Time to complete: 4 to 5 weeks
Savings: 7 to 11%
Tip: A great variation on this theme is to eliminate maintenance on all non-critical systems. A key indicator that one SIG member company successfully implemented was to identify in-scope agreements was finding those with an annual maintenance cost of less than $200,000. This threshold was used as a proxy for non-critical systems, validated by the business leader. All such maintenance contracts were cancelled.
Time to complete: 4 to 6 weeks
Savings: 10 to 15%
Tip: One of our clients had an urgent mandate to reduce third party legal costs by 10%, phase one of a larger, more complex project to reduce legal costs and improve legal cost management. As in many companies, 20% of the preferred law firms accounted for 80% of the expense.
A review of the standard terms of engagement revealed that these firms levied rate increases annually, regardless of competitive market conditions. The General Counsel called the managing partner at each firm to let them know we were seeking their cooperation to help us reduce costs. With limited negotiations, we were able to eliminate two years of rate increases, saving the client over $2 million.
Time to complete: 6 weeks
Tip: Few companies have reverse-auctioned bundles of legal services. One innovative SIG member company worked with their legal department to quantify the number of litigation matters and employment law files over the previous three years. They were able to establish a baseline for the number of legal cases and the average cost where external counsel was used. They reverse auctioned a bundle of a specific number of cases, inviting qualified legal firms to bid. The legal firms bid on the bundle of legal matters, contracting a fixed fee for each legal case, generating saving of 50%!
Time to complete: 4 to 8 weeks
Savings: 15 to 25%
Tip: Personal desktop printers are ridiculously expensive to operate. The cost per page to print is often 10 times more than a multi-functional device. Add to that the expense of purchasing the machine, ordering and storing surplus cartridges, maintenance, connectivity and network support.
This one takes real leadership to implement, and senior leaders must lead by example. It is also important to note that unless your shared multi-functional devices have passwords, you will not be able to eliminate personal printers where confidential documents are frequently printed.
ONTALA's "Lessons Learned"
Do the math. Invest your resources wisely.
Stakeholder support is inseparable from successful sourcing projects.
It doesn't have to be sexy, just get it done!
Linda Tuck Chapman can be contacted at firstname.lastname@example.org or (416) 452-4635. ONTALA specializes in Strategic Sourcing, Offshoring, Outsourcing, Shared Services and Vendor Governance. ONTALA Performance Solutions' strategic network of seasoned Advisors ensures you get the best team, the best results, every time. www.ONTALA.com
Access a more detailed Survivor’s Playbook in the SIG Resource Center by clicking here.
Join Linda, Deborah Manos-McHenry, SVP and Chief Sourcing Officer, Huntington National Bank, and, Doug Blossey, SVP Procurement Strategy, Risk and Operations, KeyBank, on Thursday June 23, 2011 for a special SIG Webinar entitled, “Best Practices in Organizational Performance Metrics for Sourcing & Procurement.” Register here.