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Savings, Cost Cutting, and Spend Reduction Opportunities: Is there another “pot of gold” to be had? Part 2

September 09, 2015 by Jeremy Kirsten

Two ceramic pots with golden coins in male and female hands, on color backgroundThis is part two of a two-part series. You can read part one here.

What else can the procurement and supply professional look for?

Many of the areas for savings dealt with in this article are not fundamentally new. Take packaging, for example. A lot has happened in the past few years. Plastic containers have given way to cardboard for many products.

 

We can also see that cardboard has been greatly strengthened for packing bottles and such. Plastic vs. cardboard may not have a great impact on unit cost, but the environmental impact certainly makes a difference. Cardboard is biodegradable while plastic takes significantly longer to decompose. The cost factor takes on another dimension when reverse logistics are in play – a brilliant strategy of reverse logistics means the supplier takes on ownership of packaging material disposal. In this case cost does come into the mix.

What are some areas where savings can be gained?

Packaging
Take a look at the example at the beginning of the article. Some years ago large ice cream containers were mostly plastic whereas today there is a great deal of cardboard containers, without any compromise on product quality. The packaging meets health standards and is biodegradable. In my view, the rule of thumb should be that the packaging is of no great concern as long as the product gets to the customer in its intended form with little environmental risk.

Another area for savings could be when packaging exceeds the required minimum without providing any tangible benefit. For example, a fluting process may strengthen a box, and this could result in an unnecessary cost, unless that additional strength is necessary for the product to be transported undamaged.

Bulk product transportation
Bulk product can be transported by a number of means: by train with purpose-designed hopper wagons, by truck, or by conveyor and bags. Bulk product traditionally transported by truck to a nearby location may be transported by a purpose-designed conveyor at a lower cost per ton.

Inventory
Some businesses carry substantial amounts of inventory for products as diverse as paint and fasteners. Restricting a range of these may not be practical if each individual line is required in the manufacturing or maintenance program, for example. However, the question should be asked. An investigation may reveal that certain products could be removed with no risk at all, meaning there are savings to be had on the cost of purchase order processing, warehouse, and inventory management.

Business processes
Business processes can work as well or as poorly as they’re designed to. Purchase order processing cost involves quite a few figures – all dependent on where the process begins and ends. Reducing the number of purchase order transactions can result in savings.

Enterprise software
Business enterprise software and tools can be a big expense. There are horror stories to be heard of businesses ending up with solutions they do not need or that have been over-engineered or customized. I realize that I may be subjecting myself to some abuse from colleagues in IT, but the reality is that far too often businesses are misadvised on their needs, and before long, the budget is blown and the solution obtained does not work to standard. Know what you need and your scope of requirements before going to market.

Travel and accommodation
Judging from the many articles I have seen in some areas recently, there is huge savings to be had. Again we do not talk penny pinching here; only that you pay for what you asked for.

Adopt optimization strategies into your sourcing and award projects. This refers to awarding or contracting in a way that results in maximum savings and the lowest costs. Some unit lines may cost more, but the overall end result costs less.
A lot of this is not new, which is why we must not ignore the fundamentals. Man, I love this job!

 

Jeremy Kirsten

Written by Jeremy Kirsten

A highly experienced, passionate & proactive Procurement & Supply Chain Manager, Project Manager, Consultant and Change Manager - I would be delighted to enter into dialogue with Procurement & Supply professionals on like matter.

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