Supply Excellence — What’s Your Bailout Plan? Indirect Spend is a Good Start (Part 2)

What’s Your Bailout Plan? Indirect Spend is a Good Start (Part 2)

November 25th, 2008 · by Diana Brown · 1 Comment · best practices, design and development, sourcing, spend analysis, supplier management, supply management

Walgreens recently announced their strategy for increasing revenues and cutting costs. And how do they plan to do it? Their “Rewiring for Growth” initiative will target strategic sourcing of indirect spend and plans to reduce corporate overhead in order to save $1 billion annually by 2011.

As we discussed last week and in a recent white paper I co-authored, indirect spend is a huge opportunity for spend management, especially with volatility in commodities, tight credit markets, and shrinking demand. But for any effort to be successful, you need to incorporate core tenets of good spend management initiatives:

Have a structured approach. In the real world, you need a structured program with timelines, goals, roles and responsibilities, etc.
Provide adequate resources to run your program. Most indirect spend organizations have to manage many categories already, so consider team approaches, partnerships, and investing in required expertise and tools to be successful.
Don’t underestimate the challenge of data. Invest in tools that enable you to cleanse, analyze and clearly view your spend across categories, divisions and geographies.
Communicate a lot, and then some more, and then some more. Programs with executive level support and strong communication have a significantly better chance at success.
Don’t forget change management. 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.
Don’t let the perfect get in the way of the good. Despite the need for good data, some organizations have fallen into the trap of analysis paralysis and they never get around to saving money.
Sacred cows need to be slain. When times get tough, traditionally off-limits areas for spend management such as Legal, Marketing and Logistics need as much focus as office supplies.
Take the opportunity to make other changes. Best-in-class spend management organizations use the presence of a broad indirect initiative as an opportunity to drive change.
Set goals and measure them. While goals typically revolve around savings, they should also incorporate other metrics such as spend under management, supply risk, trained team members, business unit participation, etc.
Go big. There are enough data points on the real value of Indirect spend management to know that it will likely work for your organization. Start with an ambitious program to get significant value more quickly.

Diana Brown is a Director in Ariba’s Spend Management Services group. Diana is responsible for sales and engagement delivery for all Consumer Packaged Goods accounts.

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