Procurement’s 7 Deadly Sins. Part II: 3-5% Savings Fallacy
Everyone ubiquitously cites 3% to 5% as your savings target but I believe that 3% to 5% savings number is a fallacy. Why am I calling that a fallacy? I believe it could be 2-3 times bigger, but you've got to focus on some things differently. So what should you focus on? What real world evidence do I have to support this admittedly non-mainstream fallacy assertion? Well at four Fortune 500 companies that I’ve had the privilege to lead, my teams delivered between 150% and 299% times those benchmarked targets, in other words up to 15%. Those outlier outcomes reinforced my belief that our universally accepted benchmarks are broken.
Consider the following thought experiment. Imagine you are in a simple footrace with 30 other companies. You are at the starting gate and instead of everyone pinning on a jersey number, they intentionally blindfolded both eyes. This symbolizes the Blindness problem as we discussed in my previous blog post. Then 29 of them shackle 100-pound blocks of cement to each foot at the beginning of the race. This was done to symbolize the numerous stupid things that happen in the Source to Contract (S2C) process to erode value. By contrast, one of the companies skips these two steps, and as the crackle of the starting pistol is fired, they are off. The question is who wins the race? The answer, the un-blindfolded and un-shackled racer takes the finish tape by a huge margin. Therefore, I am saying that your company must figure out how to be unshackled with unimpeded vision as they embark on creating value with the Procurement function. These are the three things you should consider:
1. Your Benchmarks Might be Busted, Right? Are you tethering to the right benchmarks to actually drive to the right types of outcomes for your business or not? In 2015 while on vacation, I had the honor of speaking to a Mastering SAP conference in Melbourne, Australia. At that event, I talked about a gangly, 6’-4” Olympic hopeful who in 1968 reimagined an event and drove a step-change in outcomes for his event. The event was the High Jump and a small-town civil engineering student from Oregon named Richard applied his engineering perspective to the problem of getting a body over a bar without knocking it down. He invented a new process, refined a new approach, and set a world and Olympic record forever relegating the prior high jump techniques (namely the western roll, scissor jump and straddle technique) as underperforming legacy practices that elite athletes jettisoned for the higher performing Fosbury technique.... That revolutionary high jump technique is commonly referred to as the, unfortunately named but highly effective, Fosbury Flop. Below is a graph illustrating the game changing leap in improvement that this back-first technique delivered:
Correspondingly in Procurement with new thinking, processes and Industry 4.0 tools, Procurement teams can reach new heights in savings impacts and business outcomes. But importantly, it does require the purposeful abandonment, replacement and outright elimination of the old, 1970’s vintage tools, busted processes and old ineffective stakeholder management practices. If you have these challenges, keep reading, help is on the way!
2. Process, Tools and Capabilities (PTC) - these are the three legs of the stool that underpin your savings and business outcomes. Notably it's the (1) interdependency of processes to which you are beholden (2) the tools that you deploy, and (3) the capabilities of your team that will actually effectively drive the outcome for your business. Buying a new industry 4.0 tool without also addressing interdependent process and team capability challenges will leave value on the table and render that value undeliverable. Spoiler alert, before you read on, know this, that there is no tool-only silver bullet that can unlock savings, instead there are a series of coordinated adjustments that are needed to across the three legs of the PTC stool.
3. Your Tools need to be Upgraded to Industry 4.0 Game Changers That will allow you to get more done, more robustly and in fractions of the time. If you are among the 98% of the readers using spreadsheets for bid analytics.
So what can YOU do about these issues? In two words “get help”. So Here is My Challenge and Your Call to Action! If you are a company that has $1 Billion in revenues, and you believe that your business is hampered by some of the challenges mentioned above, I will be that help. If you reach out to me at waltcharlesiii@gmail.com, I will put you in touch with the companies and solutions providers that have helped me navigate the journey “from Busted to Brilliant”. “Remember Advice is FREE, but Continued Ignorance Costs Money!”
Stay tuned. “Part III: Three Bids in a Buy Abuse”, coming soon. If you haven’t read “Part I: Blindness”, I suggest you catch up.