© 2009 Ariba

The 50 Greatest Spend Tips of All Time!

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 1 Use Downturn to Become
Customer of Choice

Instead of just leveraging the current

economic situation for additional price
concessions or contract renegotiations, use
the downturn to urge suppliers toward new
innovations, process improvements,
and joint cost-savings/productivity
improvement programs.
 2 Get Smart

The global economic slump has sent

the number of business bankruptcies
skyrocketing. Minimize supply risks by
negotiating the rights to key intellectual
property assets should a critical supplier
go out of business.
 3 Negotiate with Sole
Source Vendor

Yes, it’s possible to negotiate with a sole source

vendor. One tactic is to analyze the product in
detail, make an in-depth valuation of its input
material, then add an allowance for overheads,
profits, etc. You will arrive at the possible
worth of the product in monetary terms and
gain leverage to negotiate.
 4 Discourage Fraud

Having pre-approved clause language

and proper process and approvals in an
automated contract management system
may root out instances where fraud can take
place. And, worse case, it provides
improved after-the-fact visibility if
fraud is not caught proactively.
 5 Don’t Pay the Premium

Take a closer look at your company’s consulting

spend limit, a supplier’s ability to provide
overqualified resources at higher prices through
standardized and clearly defined job descriptions.
Conduct thorough analysis to define requirements,
with a focus on right tiering. Lastly, minimize
consultants’ travel costs by utilizing local
firms when possible.
 6 Watch the Weather

As with any risk posed by natural or man-made

disaster, having a good contingency plan for vital
transportation routes will keep your supply chain
and sales channels moving. If there are floods
in dry climates and droughts in typically
humid environments, expect and plan for
commodity prices to rise.
 7 Conduct Your Own Audit

Ask the in-house legal team to do a blind review of your

own contracts to look for misplaced priorities and potential
exposure. Have your sell-side legal team look at your own
company’s buy-side contracts and vice versa. You may find
that your own contracts and legal priorities are insulating
against the wrong types of risks and are extremely
burdensome, which at best extends negotiation cycle
times and wastes expensive legal resources, and at
worst actually costs business or introduces new risks.
 8 Unfreeze-Change-Refreeze

Structured change management efforts are often the

first thing to get dropped when the battle for scarce
resources begins. Change management is also often
the first thing mentioned as “gee, we shoulda” during
lessons learned. Before introducing a new concept or
technology, research and implement a tried-and-
true change methodology like the Kübler-Ross
model, Gleicher’s Formula, PCI (People Centered
Implementation), or the ADKAR model.
 9 Know Your Cost Drivers

If a supplier cites a “general increase in

commodity prices” as the reason behind their price
inflation, be wary. Armed with information on the
true cost drivers of your direct materials – from
relevant commodities and currencies to labor
and transportation – you can push back
against unwarranted proposed price hikes.
10 Continue Your Education

According to AMR Research, sourcing and

procurement professionals should take continued
education programs that emphasize analytics,
finance, strategic business alignment, and even
negotiation strategies. With that knowledge, you’ll
be better equipped to speak the language of
your stakeholders and meet or exceed their
goals and expectations.
11 Stay Involved

Don’t underestimate the power of networking, not

only for your own professional enrichment, but
to “borrow” best practices from your colleagues.
Associations like SIG, CIPS, ISM, and IACCM
offer regional events that promote informal
roundtables and social outings to stimulate
spend management conversations.
12 Curb Maverick Spending

Stop off-contract spending by employees, whether

they are purchasing from their personal preferred
suppliers or simply unaware of better terms other
buyers in the company have negotiated. Reigning
in maverick spend can lead to total cost
savings of 17 percent on average.
Note..there should not be a line here…don’t know how I
inadvertently added it there, but can’t figure out how to delete it.
13 Open the Lines of
Communication

Be honest with your buyers/suppliers about your

financial situation. If you’re a buyer in tough times,
it may be worth discussing the situation with your
strategic suppliers. Odds are good that they value
your business and would feel some degree of financial
pain if you cut orders or, in extreme cases, went
under. So offering discounts or renegotiating
terms may be preferable to the alternatives.
14 Diversify

The current economic environment demands that

you reexamine sole- or dual-sourcing approaches.
Qualify alternative suppliers and have a rapid on-
boarding plan should your existing suppliers fall
on tough financial times or have operations
disrupted by unplanned events (or even lack
of skilled labor during the upturn).
15 Share with Others

Try simple demand management techniques,

such as moving from personal printers to
shared printer stations. One oil and gas
company reported that shifting to shared
printers nearly halved printing costs
(i.e., those spent on ink, paper, repairs,
etc.).
16 Read the Signs

Drops in quality or shipment delays can be

indications that the supplier has cut too deeply
into its operations. Frequent requests for
early payment or changes in sales and support
personnel should also raise a red flag. While
these symptoms may not necessarily
indicate supplier troubles, they should
warrant further investigation.
17 Poach Talent from Your
(Internal) Customers

Increasing spend under management and tackling

new strategic areas require skills and political
capital that many procurement groups lack.
Overcome these hurdles by recruiting talent
from other functions, such as marketing, finance,
engineering, etc. These recruits offer unique
skills, are well connected, and “speak the
language” of your internal customers.
18 Don’t Be Afraid of
Long-term Commitments

With credit drying up, more suppliers are strapped

for cash. You can help suppliers and yourself
by negotiating multi-year contracts. Bankers
are more likely to extend better credit terms to
suppliers with committed business. And
suppliers typically offer better pricing terms
for longer-term agreements.
19 Lean Up Your Orders

Many suppliers have invested a bundle in

automating their ordering process. Some even
offer incentives for customers to use these online
channels, as it lowers their costs and reduces order
errors. For example, some express mail carriers
charge premiums for handwritten waybills.
Avoid such fees by using their online shipping
forms.
20 Know Your Customers

Leading companies have built spend management

strategies that first and foremost align with and
provide value to internal customers. For example,
AstraZeneca’s procurement squad has a 2-1-2
methodology: two days per week meeting with and
understanding the internal customer, two days
per week meeting with and understanding
suppliers, and one day per week at your desk
executing on other tasks.
21 Choose the Right Plan

An increasingly remote and mobile workforce

is adding complexity and unpredictability to
telecommunications costs. Many companies
are regaining control with role-based plans or
reimbursement caps that match mobile phone, data,
and text plans to expected on-the-job usage of
individual roles or employees. Overages must
be covered by the employee.
22 Rethink Your Water Use

Water-efficient faucets and toilets are

increasingly affordable. And the payback
is quick, with most water-efficient devices
delivering full ROI in less than one year.
Typical users report cutting water bills
by more than 25 percent.
23 Don’t Design Risk into
Your Supply Chain

Stop engineering and other functions from defining

vendors or products by engaging with the design
process for a new product or service request during
the concept phase. Use this early involvement to
better understand functional requirements and share
insights into supply market dynamics. Some
leading procurement groups actually define the
approved parts list from which engineers can
design new products.
24 Do Regular Reference
Checks

Increased supply risk calls for increased

scrutiny. Double check the health of your
most critical suppliers by doing reference
checks with both their customers and their
own suppliers. Ask references about any
changes in service, orders, or payment
schedules.
25 Ask for Free Stuff

Many suppliers are taking innovative approaches

to securing long-term business that won’t eat
into their margins. Many will offer up value-
added services such as free warehousing or lift
gate services from transportation carriers as
an alternative to price concessions. Such
“freebies” can often lower your total costs
far more than a price break.
26 Pay Sooner

A growing number of cash-strapped

suppliers will offer discounts or rebates
beyond your contracted terms in return for
prompt (or even predictable) payment. Early
payment could be one of the quickest
ways to achieve your cost savings
targets.
27 Engage in Risky
Contracts

Leading companies are adopting new contracting

approaches that align risk and reward. Ask for
greater price concessions from suppliers unwilling
to take on more risk (whether it be demand or
market uncertainty). Be willing to pay more
for suppliers willing to take on (and able to
support) more risk.
28 Get Green Before
It’s Too Late

Pending legislation in the U.S., European Union, and China

could make environmentally and socially responsible
manufacturing and buying practices a requirement of
doing business. Savvy buying organizations are getting out
ahead of the legislative tide by understanding the potential
requirements of the proposed regs, developing
metrics and practices to track carbon-footprint, and
ensuring socially friendly buying practices across
their supply chain.
29 Make Friends with Finance

Leading spend management organizations

do not report savings. Instead, they rely on
Finance to measure, validate, and report
actual procurement cost savings to the
business units. (The top performers
actually remove this validated savings
from the budgets of the business units.)
30 Become a Customer of
Choice

Savvy companies are using the economic downturn

to shore up supply and improve relations with
their most strategic suppliers. Ways to improve
supplier relations include engaging in longer-term
commitments, establishing predictable payment
schedules, improving forecasting, and working
on joint improvement or waste-reduction
initiatives.
31 Be a Marketing Guru

A growing number of procurement organizations

are employing tried-and-true marketing
communication techniques such as newsletters,
promotions, events, and webinars to communicate
spend management goals and policies and
to win the support of internal customers.
Leading companies have a full-time
marcom specialist on staff.
32 Know Your Limits

Industry leaders like P&G are looking for at

least half of all new innovations to come from
outside parties. Spend management leaders take
this same approach, balancing internal skills
with external supply market and sourcing
expertise, as well as execution services, in
order to accelerate savings and capture best
practices.
33 Get Your Street Creds

The average salary of supply managers who hold at

least one credential is six percent higher than those
who do not. Be sure to get your procurement and
supply management credentials from accredited bodies,
like the Institute for Supply Management (ISM), the
Charter Institute of Purchasing & Supply (CIPS),
International Association for Contract and
Commercial Management (IACCM), and Next
Level Purchasing.
34 Manage More (and Different)
Spend

Not surprisingly, ISM found that supply

managers’ salaries rose in proportion with the
amount of spend they managed. What’s more
intriguing is that Purchasing found that salaries
were highest for those managing non-
traditional spend categories, such as
business services, IT, and logistics.
35 Think Big

Purchasing reports a direct correlation

between the size of company you work for
and your take-home pay. Supply managers
working for companies with annual sales
above $500 million earn 52 percent
more than those working at companies
with annual sales below $125 million.
36 Make a First Impression

Negotiation is the first, best example of how

you will deal with your trading partner. It
creates a precedent for how implementation
and the ongoing relationship will take place.
Clearly state your requirements, explain
the rules of engagement and award,
and follow through with integrity.
37 Choose KPIs that Matter

In the words of one CPO, “If you have too

many key performance indicators (KPIs),
can they really be key?” Limit yourself to
three to five core KPIs that your team can
use to drive its actions and that can be
clearly articulated and understood by
the business.
38 Make Tradeoffs

The key to successfully sourcing specific spend

categories lies in understanding the unique
requirements and concerns of key stakeholders
and developing an integrated approach to
address them. Engage stakeholders early
in the process to gather requirements and
ensure alignment.
39 Remove the Fear Factor

Demonstrate how cost-efficiency and quality can

coexist and increase the value that marketing
delivers through re-pricing and aggregating
vendors, re-defining specifications, formalizing
processes and tying them to contract
compliance, and increasing collaboration
with key suppliers.
40 Account for Nuances

Each category project has unique

requirements that must be taken into account
when developing strategic sourcing events.
Adapt your approach to empower suppliers
to offer creative solutions that achieve
your cost targets and advance business
goals.
41 Adopt Alternatives

Wringing the best value from negotiations

requires alternative negotiation methods, such
as flexible bidding or optimization-based
sourcing, which allows suppliers to differentiate
their solutions on multiple parameters
beyond price and enables them to suggest
alternative bundles or offers.
42 Schedule Regular Check-Ups

Take these five steps to evaluate your suppliers’

health: address risk in your RFx process, look
for early warning signs (delays or drops in
quality), increase the frequency of site visits,
automate your supplier management
process, and of course, look at the
company’s financial viability.
43 Know Your Supplier

Work with suppliers to understand their

underlying cost structures and inputs, market
pressures, operations, and strategic plans for
growth and expansion. Such insights can help
you jointly identify areas to remove
additional costs from the system, and can
better protect you from unforeseen risks.
44 Sing Your Team’s Praises

Communication and alignment of goals within

the department is key, but it’s also important to
highlight the results of your group to the company
at large. Use newsletters, roadshows, and regular
communications with key stakeholders to clearly
state your goals and achievements in order
to grow the procurement organization’s
influence and spend under management.
45 Attract A+ Talent

With purchasing staff moving away from

transactional roles and towards strategic functions,
job requirements have changed…a lot. Once you
have found and hired that top talent, retain them
by proactively aligning their aspirations with
organization goals. Encourage high performers,
stimulate their minds, and minimize the
hassles that hinder their performance.
46 Do Your Homework

Markets are changing so quickly that you really

can’t just assume that the best answer is to head
to China, CEE, India… or wherever the hot spot
of the moment is. It’s important to understand
raw material supply, manufacturing skills
and capacity, and changing tariff and
other regulations.
47 Slay Sacred Cows

When times get tough, traditionally off-limits areas

for spend management such as Legal, Marketing
and Logistics need as much focus as office supplies.
Use the economic crisis to secure support to attack
these formerly untouchable categories. Engage key
stakeholders by de-emphasizing cost savings
and focusing on their core objectives first, such
as quality, brand integrity, or risk avoidance.
48 Maintain Your Integrity

Clearly state your selection criteria, rules for

engagement and negotiation, and how you will award
the business. If you are solely looking for the lowest
price, say so. If you award bonus points to incumbents
for past performance, say that, too. Transparency
and consistency can earn you the rep as a good
customer and will encourage suppliers to
compete even harder for your business.
49 Read All about It

Commodity markets, currency fluctuations,

and political conditions must weigh into your
decision. So stay on top of the key categories
and work to identify opportunities ahead of
the curve.
50 Buyer Beware

There’s no reason to focus on locking in a

low base price when the fine print gives your
supplier other avenues for raising prices.
Make sure surcharges are on the table during
negotiations so they don’t surprise you
down the road.