October 31, 2023 | Procurement Strategy
With inflation soaring, organizations urgently need to rein in costs.
Traditionally, business units directly manage their own supplier collaborations for savings.
However, this decentralized approach has drawbacks.
Procurement is now better positioned to drive cost reduction through centralized, contract-based initiatives like Collaborative Process Improvement (CPI).
Business user-led projects offer agility but lack structure. Relying on individuals to self-manage supplier partnerships risks inconsistent cost tracking and lost savings opportunities. Without formal contracts, suppliers may lack motivation to deliver real reductions. And circumventing procurement forfeits their negotiating expertise.
CPI provides a framework coordinating centralized initiatives between procurement and suppliers. By first analyzing spend data together, they can identity savings potential. Contracts then formalize objectives and guarantee supplier commitment. This structured approach ensures transparency and accountability for maximizing cost reductions.
For example, procurement can negotiate prebates, rebates, and credits into CPI contracts. But decentralized teams often miss out on these benefits by not involving procurement in discussions. Early collaboration also allows suppliers to contribute process improvements before implementation. This proactive strategy means they take co-ownership of cost reduction goals.
Despite the advantages, transitioning to CPI requires changing organizational mindsets. Business units relinquish some direct supplier control. This may face resistance without demonstrating CPI's superior savings potential. With effective change management, however, enterprises can overcome barriers.
The current economic conditions demand urgent cost control across industries. By strategically adopting centralized procurement-led initiatives like CPI, organizations can derive greater value from supplier partnerships. The time has come for procurement to step up and fully exercise its capabilities as a profit center.
To learn more about Collaborative Process Improvement, download our bulletin now.