If you're in charge of procurement for your business, you know cost savings is a priority. While initial negotiations with suppliers may result in lowering costs, it shouldn't stop there. That's where a Continuous Improvement (CI) program comes in.
Typically, a procurement manager pressures suppliers for rate reduction and/or puts out RFPs to reduce costs; however, this comes at a serious price. Rate reduction can result in lower quality service and products. Additionally, changing suppliers requires many labor hours, and potentially compromised service and compliance rates, which cost more than what you initially saved. To avoid this, here's how to start your own CI program:
- Collect data. Collect your current spend information and survey personnel involved with each department you're purchasing for to understand how service levels, waste, productivity and process can be improved.
- Be clear in the RFP Process. State your savings objective and the areas you'd like to see improvement. The RFP response should require suppliers to detail where they can provide savings, estimated savings percentages and tracking methodologies.
- Finalize details. Once you've selected a supplier, finalize the details of the CI program. Establish a list of programs and processes along with the savings calculation methodology and the governance process.
- Stakeholder buy-in. Without end-user support and willingness to adopt changes, there is little chance of success. Present the benefits of a CI program to key stakeholders and the potential cost savings at hand. Get them away from the "don't fix what isn't broken" mentality and proactively look for ways to improve.
- Work with the right people. Operational personnel – not sales personnel – will ensure CI success, as they understand the products, services and improvement opportunities without compromising on quality, so ensure that's who you're working with.
- Work with long-term suppliers. CI programs work best with long-term supplier relationships. If possible, pursue these programs with suppliers who have at least a 3-year contract to ensure a long-term sustained savings perspective.
A CI program lays the foundation for a mutually beneficial long-term relationship between you and your supplier that results in cost savings, risk reduction and process improvements. How have you recently implemented a CI program?