When looking for efficiencies and cost savings, the first place most companies tend to look is to their suppliers, working on the assumption that if we can negotiate better prices, then our costs will fall.
Although this is certainly one lever that should be assessed, I believe in the old saying – “get your own house in order first”
By reviewing the internal processes first, you are able to identify even more opportunities to generate not only cost savings but also efficiency gains from your negotiations with your supply chain partners.
For instance, one client that I’ve worked with had negotiated a fantastic deal with one of their main suppliers – the deal was scheduled to deliver a 16.7% annual saving across circa 30% of their overall spend. The products covered were mainly low value, high volume materials required to deliver their services to their clients. Their average stock holding of these products amounted to circa £25m.
By helping the client to introduce more structure around their stock management processes, implementing automated stock ordering and adopting a simple stock monitoring process, we were able to reduce stock by 20% within 3 months. This delivered an immediate £5m cash benefit to the Company, significantly enhanced the operational efficiency around stock management and strengthened the relationship with the chosen supply chain partner.
The Value Chain Tri-zoneTM has been developed to help you review all areas of your business to ensure that you can optimise all internal practices and processes. Opportunities such as this exist across the entire Value Chain Tri-zone of any organisation. The diagram below illustrates what I mean by the Value Chain;
When undertaking an organisation wide review, I tend to break down the organisation and the opportunities that exist, into three core areas;
- Asset Management opportunities – these focus on the financial aspects of an organisation and are geared towards efficiencies in capital employed
- Enterprise wide opportunities – these are typically cross functional and are strategic in nature
- Function specific opportunities – these are more tactical and transactional in nature focusing primarily on individual functions.
You can discover more about the Value Chain Tri-Zone, in my book – The C.O.S.T. Optimisation Formula – download your free copy today by clicking here.