Sourcing and procurement operating models offer sustainable cost reductions

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As the economy slides into the downturn cycle, organisations are switching focus from growth strategies to cost management and risk management to protect their bottom line. Many companies have exhausted short-term tactical cost reductions and are now looking for more radical and sustainable sourcing and procurement (S&P) operating models, Ged Mackell of Deloitte Consulting tells SmartProcurement.

"Research has shown a clear trend of S&P being elevated to a strategic partner responsible for operational and capital expenditure.

The operating model approach can unlock value by providing significant opportunities to reduce costs, increase operational efficiencies and effectiveness and improve customer service.

Deloitte Consulting’s approach to building a functional operating model to sustain S&P’s value proposition is based on Deloitte’s experience in addressing sourcing and procurement needs across a range of clients in different industries, the approach is useful to define a company’s future sourcing and procurement organisation.

Indirect spend generally represents up to 30% of a company’s cost structure, which could be reduced by 5 to 20% (of total expenditure) through an enterprise sourcing and procurement initiative.

This expenditure is normally buried in departmental budgets and makes spend visibility a critical element to identify and drive savings.

S&P focuses on both operational procurement performance such as internal customer service, as well as external supplier performance. S&P also drives value in that it must also manage the supplier’s value adding contribution such as the introduction of new technologies and innovations.

The key business drivers are unlocking value and addressing governance concerns, where the budget owner specifies the requirements and selects the supplier.

Click here to read Deloitte Consulting’s publication ‘Sourcing and consulting – your future today’.

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