How to Find Huge Savings for Large Companies

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(Edited)

How to Find Huge Savings for Large Companies


Easy Opportunities: Spend by Category

Finding huge savings opportunities for large companies starts first with knowing what you're looking for, and at my large corporations most procurement departments, especially more strategic roles, aren't given tasks rather goals. In other words, you are an internal salesperson for various savings opportunities that you believe exist. In finding these opportunities, knowing how to sell them is key because it is the foundation of how you would begin your search.

I've worked for many companies in my experience; from small start ups, huge acquisitions, industry leaders and guess what? I found every single company I've worked for is ran by humans, and humans don't think of everything. This means, there is constantly opportunities to save large companies a ton of money, especially when you're talking about a large volume of spend! Every single company pays bills to suppliers and that is where you would begin your search for easy savings opportunities.



Understand the Billing Data

Most companies, specifically publicly traded corporations, attempt to know where their costs are going to a certain degree by applying general ledger coding (GL Codes). Large corporations do this at least because they must accrue year over year but also because they are accountable to their ultimate stakeholder, the shareholders who are looking at their performance. The GL codes is how the accountants update and manage the balance sheet, operating costs, EBITA, etc. and drives corporations finance team's analysis of costs that establish the budget used to benchmark performance.

The billing information is the data that is the easiest source to spot low hanging fruit but it may not always exactly the data to look through easily. So you would become familiar enough with it to know how to find what you're looking for, then this is when you can start your search by looking into various sub-categories that would need to be grouped and that you're experienced with. In my case, I'd look for any type of capital equipment or large spend I can trace to raw materials or other categories of spend like transportation equipment, logistics services; e.g. any particular supplier I may recognize in the top 20% by spend.

Believe it or not transportation and capital equipment (trucks, tractors, cranes, heavy special equipment) are some of the largest spend areas for a lot of companies too! Think, most companies have to ship either themselves or pay someone else to do it, and there is always ways to find low cost commodities by getting creative and designing complex supply chain scenarios newly identified from various supplier networks.


Group the Spend



When I start my search for finding savings opportunities I group the billing data by applying what I know about the general ledger coding nomenclature into categories, sub-categories, and some times I try and link possible synergies if any exist; i.e. paying an outside provider for something that is in line with a spend area your company is already large in, this is when something like make vs buy would apply. Once the grouping is done, I then target the top 5 or so suppliers in that each lowest sub category.

Tip: If the ability is provided for, check into everything going on between your company and the supplier because ultimately in order to save on anything you are going to likely have to negotiate a better deal but more importantly kindly give the current supplier to ultimately lower their rates respectfully. So to do that effectively, you must first know what you do and these top suppliers should apply the 80/20 rule relatively and give you not only the best idea of the business relationship, services, etc. the supplier may provide your client/company but also how your company operates in an industry and whether there are other opportunities from a best practice, process implementation standpoint.



Conduct a Formal RFP or RFQ

Now that you know how you currently operate, existing stakeholder relationships if any, and the incumbency state you can now take it to the next step and understand the full scope of any opportunity from the billing data into either a "Request for Quotation" (RFQ) or "Request for Proposal" (RFP).

An RFQ is used for something that is a commodity or the contract you're looking to award that is is structured in a way where you're really just price shopping, in some cases a Master Service Agreement (MSA) may already apply as well.

An RFP is something that you have more of a problem your company is looking to solve, like a building project or new design presentation in which the solution you're looking for isn't as simple as identifying a price but about the total proposal being offered.

Once you determined whether you formulate an RFP or an RFQ, you're ready to go to market to see if there are easy opportunities by simply either negotiating with existing suppliers or introducing new supplier relationships.

The other scenario an RFP or RFQ can often lead to, especially if it's in line with an existing business model for your corporation, is Make Versus Buy or Doing it Yourself Versus Paying Someone Else to do it... You're not always trying to save by negotiating (buy) but sometimes negotiating tells you what your benchmark is up against doing it yourself (make). I'm going to focus more on negotiation because it's something I think most people can digest versus complex supply chain optimization scenarios and advanced stages of supplier negotiations that result in deeper analysis.




Summary

To recap, the easiest way to save money for large corporations is by:

  1. Get the billing data
  2. Build a RFQ or RFP from "enhanced" billing data
  3. Identify suppliers and put the spend through a competitive process

In the last step, engaging in negotiation respectfully with existing suppliers to lower rates is often times seen as a "slam dunk" in my opinion, especially if the RFQ/RFP conducted would suggest historical invoiced rates were not competitive.

Worst case the current supplier doesn't comply in negotiation, but then it's much easier to "break-up" with the incumbent if they're not competitive, because it would be easy to show any internal stakeholder why you're proposing a change with the quotes from the RFQ and evidence you would have from the existing supplier not wanting to comply. In most cases, it would then only be a matter of working with the internal business stakeholders to transition and award to the new less expensive supplier the business.





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