Overwhelmed, how do I reduce spend?

 

Question:
Hi, I was recently hired into a procurement role and my manager gave me the task of reducing costs across our suppliers.

I’m newly out of university and haven’t had a lot of real world experience and my manager hasn’t been really helpful here in giving my guidance.

I’m able to see some basic spend analytics across my suppliers but super out of my depth here in terms of cost reduction. Should I be trying to negotiate contacts? Consolidate suppliers?

Any sort of framework or advice would be helpful, I’m really struggling thank you!

AIMDRIVE-AI Solution:

Use a combination of price and cost intelligence and analysis and proactively engage suppliers in cost-based discussions and negotiations.

For example, adopting a fact-based approach for assessing supplier price increase requests has yielded many cost avoidances/reductions. I would engage in the following analysis every time I deal with a supplier price increase request to identify whether the price increase is justified:

1. Price Analysis: Look at benchmarks related to the trend in price changes over time. This is sometimes sufficient to identify whether the price increase request is justified.

2. Cost Analysis: This is especially relevant and a must-do after Price analysis is performed, for purchases that are non-industry standard (purchases for which there is no industry benchmarks available because few companies buy these specifications). Cost analysis typically starts by developing a view of the average cost structure of products (or services) sold by the industry that we source from. This can be used to understand the magnitude of the elements of price that may have been impacted over time, such as cost of raw materials. This is then compared against the supplier’s requested increase for the overall price. This analysis has often showed that suppliers ask for more than is justified and can also be used to ask for price decreases when costs go down.

For an example of how to do this effectively I would recommend the following article: https://aimdrive.com/solutions/price-increase-request/

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