Tag Archives: spend management

An important lever for modern organizations.

Sourcing is a key component of your Supply Chain – perhaps the most important part. As companies are navigating an increasingly turbulent yet robust economic climate, businesses in manufacturing, mining and metals, food and beverage, and other industries are looking for ways to reduce raw material procurement spending and offset rising material costs. Faced with these challenges and demand outstripping capacity, purchasers feel an increased need for stronger vendor relationships.

That’s where Strategic Sourcing comes into play. By overhauling sourcing frameworks and opting for an integrated approach, enterprises can foster closer vendor relationships, reduce the total cost of ownership, and lay the groundwork for sustainable success.

Download our eBook: “Understanding the Importance of Strategic Sourcing” to learn more about strategies for dynamic supply chain sourcing.

Are you getting the most out of your current sourcing vendor relationships?  Contact us today to discuss how to strengthen your strategic sourcing strategy.

Back to top ↑

Marketplace pressures have forced procurement professionals to abandon traditional sourcing practices and implement more responsive strategies designed to promote organizational efficiency, agility and flexibility for growth, not to mention cost reductions. For businesses on the outside looking in, it might be difficult to understand how strategic sourcing differs from other long-established procurement practices. Here’s what differentiates truly strategic sourcing strategies from their predecessors:

Data dominates strategic decision-making

In the past, procurement professionals focused on building and maintaining relationships with suppliers. This makes sense on the surface. After all, vendors are more likely to provide price reductions and special services to loyal customers than they are fickle patrons. However, these connections can become problematic. Service agreements might fade over time as casual collaboration usurps formal partnership. This can lay the groundwork for cost increases and significant breakdowns in service delivery.

Conversely, strategic sourcing strategies place more focus on data analysis rather than relationship-building, according to Insight Sourcing Group. Instead of measuring vendor performance via the quality and frequency of personal interactions, procurement teams utilizing this methodology base their decisions on actionable KPIs and regularly review active contracts to ensure adherence. While impersonal, this approach often generates optimal return on investment as it allows procurement teams to partner with high-quality suppliers and therefore strategically source materials based on real-time marketplace conditions. This operational strategy is essential today because of fluctuating raw material prices, according to analysis from analysts at Knoema.

Growth outpaces gain

Stakeholders in most departments normally gravitate toward operational strategies that net quick wins. Procurement professionals are no different – and for good reason. More than 80 percent manage activities that directly affect the bottom line and contribute to company success, analysts for PricewaterhouseCoopers found. As a result, most are under pressure to appease executives who answer to shareholders looking for immediate, demonstrable progress. Unfortunately, quick wins do not translate to sustainable success. Deals made in the interest of immediate budgetary or operational improvement often lose their luster over time and can become budgetary burdens, the organization discovered. Additionally, some vendors draw up contracts in anticipation of this strategy, front-loading potential agreements with discounts or credits that disappear following the first year or so.

On the other hand, supplier agreements developed as a part of strategic sourcing best practices center on short-term and long-term company needs, allowing vendors to provide services that change or scale with the organization. The benefits that come with these contracts tend to unfold slowly, making them considerably less flashy than deals designed to generate quick wins. However, they undoubtedly have a more lasting affect on operations by facilitating extended growth.

Strategic thinking begets bargains

In the past, vendors had the upper hand when negotiating with businesses due, in part, to the fact that few procurement teams spent time looking into alternative sourcing options, Insight Sourcing Group reported. In fact, best practices dictated that procurement professionals solicit a handful of proposals and choose the cheapest out of the bunch. This was, of course, an immensely problematic strategy that not only increased the likelihood of budgetary overrun but also promoted operational decline. The emergence of strategic sourcing has changed the procurement paradigm, allowing organizations to take back bargaining power via strategic thinking.

Today, businesses confronted with unfavorable supplier agreements are likely to look for other arrangements by mining their supply chains for sourcing functionalities that might negate the need for external partners. Sometimes, enterprises decide to keep things in-house and avoid third parties altogether. In other cases, this practice prompts vendors to reassess their original proposed agreements and draft new contracts with more favorable terms. No matter the strategic method of choice, organizations that pursue methodologies centered on strategic thinking can save money and ensure they can bring in the raw materials needed for production.

These are just a handful of the variables that separate traditional sourcing models and strategic approaches, which continue to increase in popularity due to their effectiveness. Indeed, businesses that embrace strategic sourcing can develop sustainable workflows that facilitate long-term growth and keep costs low – truly the best of both worlds.

Here at USC Consulting Group, we’ve been working with organizations in almost every industry for 50 years, helping them transform their operations and adapt to marketplace shifts of all kinds. Connect with us today to learn more about our experience and how we can help your company bolster its bottom line by embracing strategic sourcing.

Back to top ↑

In recent years, businesses have scaled back capital expenditures. In 2015, American nonfarm businesses invested more than $1.6 trillion in new infrastructure, according to research from the U.S. Census Bureau. That figure dropped 4 percent in 2016, the latest year for which data is available, to approximately $1.5 trillion. This decrease ended a decade of consistent CAPEX growth.

Analysts attribute this dip to collective belt-tightening and streamlining measures. Instead of spending to scale their operations, organizations are, according to a survey from Arcadis, focusing on catalyzing better returns, reducing speed to market, facilitating agility and flexibility, and cultivating sustainable capital investment programs.

Sustainable capital investment is especially important for businesses that intend to find success in today’s fast-moving economy, where effective budgeting, not volumetric spending, lays the foundation for long-term success. Through our CAPEX Control program, USC Consulting Group assists companies that wish to embrace this methodology of strategic investment. Our goal is to help executives and shop floor leaders take control of their spending and establish concrete workflows that lead to budgetary and operational success.

Supporting systematic success

Companies that embrace our CAPEX Control program collaborate with our consultants to develop workable CAPEX management operating systems (CMOS). These frameworks give our clients the power to maximize the impact of their expenditures by equipping key decision-makers with the tools that enable them to align expenses with overarching business goals.

This simple capability ensures that budgeted upgrades will have a demonstrative impact on the shop floor and meaningfully bolster the bottom line. A CMOS also includes a number of ancillary components that further promote CAPEX maximization, including resources for reducing the number of unbudgeted projects. Unplanned initiatives are especially problematic, sapping funds from more worthy projects while wreaking havoc on the books. A CMOS also targets unproductive spend as well, ensuring that all investments are linked directly to overarching business objectives and will therefore contribute to the operation.

The processes, procedures and tools included in a well-crafted CMOS can empower organizations of all sizes to maximize their CAPEX and do more with less.

Implementing on the shop floor

Following the opening CMOS design phase, businesses move on to training and implementation. As mentioned above, the average CMOS contains a several modules, with which executives, back-of-house administrators, and operations specialists must become familiar. USCCG takes time to prepare and train these parties for the inevitable operational sea change that comes with CMOS implementation.

Normally, CMOS effectiveness increases with time as users learn how to efficiently deploy mission-critical processes and tools in the real world. Within months, most companies ramp up fully and begin CAPEX maximization practices that match the modern marketplace, building a foundation for success.

Here at USCCG, we’ve been working with businesses across many industries for five decades, helping them adapt to marketplace transformations of all kinds. Connect with us today to learn more about our work and how the CAPEX Control program can benefit your company.

Food and beverage companies need to meet customer expectations and optimize operational processes to succeed in a new market. However, not every business has the means to contend in this new environment, nor the internal processes to counter evolving consumer tastes. Still, there are strategies organizations in the industry can implement to help keep them modern and marketable.

For more insight on how trends in the food and beverage industry impact manufacturers today, download our e-book, Trouble at the Table.

Are 21st-century supply chains worth as much to manufacturers as the capital they invest in them?

Here are a few indicators of supply chain spending may require significant retooling very soon:

1. Optimization efforts that show no skepticism over current operations
Real improvement starts by identifying a problem and working from there. Yet more often than not, manufacturers scrutinize partners, employees, and contracted help while turning a blind eye to their internal processes.

Results from a recent supply chain survey conducted by Grant Thorton LLC on behalf of the National Association of Manufacturers proved this. Nearly 80 percent of manufacturers reported primarily targeting direct spend to improve their supply chain operations as opposed to indirect spend. Wasteful operations and rework are undoubtedly worth addressing, as these indirect expenses correlate with direct ones. How can a business expect to reduce, say, materials costs without first understanding exactly the base amount of materials it needs?

But there’s something far more disconcerting about the stark difference between attention paid to direct versus indirect spend lurking here. Are these manufacturers essentially ignoring faults in their internal processes because they lack the resources to properly vet them and fix them intelligently? Why assume such unpreparedness? Because the same Grant Thorton/NAM survey revealed only 10% of manufacturers even have a definitive strategy for optimizing supply chain performance.

Lean operations require investment in continuous improvement strategies. Companies must examine whether their direct-spend improvement mindset reflects a true dedication to excellence or an avoidance of a larger issue of documentation and analysis.

2. No goals (or negotiating) at the negotiation table
Manufacturers walk a narrow line when meeting with supply vendors over contract renewals or modifications, or when they enter new supplier partnerships entirely. Strategies around procurement pricing must be tight and calculated. One PricewaterhouseCoopers study estimated sourcing costs for manufacturers at between 50 to 80 percent of total cost.

Yet this hard-line approach obscures the benefits of a goal-oriented negotiation, one that recognizes the importance of whatever it is the vendor hopes to achieve through the partnership. This builds a solid foundation for rewarding a supplier relationship that can return far more than pricing discounts ever could.

Before hashing out procurement with a new or legacy supplier, manufacturers should take a second look at the goals they hope to achieve through this partnership and prioritize them so they know which goals they can and cannot budge on. To be valuable, however, these objectives must not be general. Leaders would be wise to speak with materials handlers and operators to learn exactly what their operations require from the supplier. Extra materials processing before delivery, for example, could save workers on the shop floor who would otherwise do it a lot of time in production.

3. Zero investment into eco-centric transparency
Customers of manufactured goods are hungry to know more about where supplies came from, whether they comply with health and safety standards, and what their residual effect on the environment is and will be. Manufacturers that do not implement new supply chain strategies around this new consumer demand will wish they had in the years to come.

Consider the recent alliance between Google and the Healthy Buildings Network, as well as the Portico platform these two businesses created together. Portico is a nascent repository of disclosure information people can access to learn about building materials manufacturers, their products and, among other things, the green certifications those products do or don’t hold. Should this database catch fire as architects and contractors demand more environmentally sustainable goods for their clients, this change could have a disruptive, revolutionary effect on producers of cement, glass, insulation, etc.

Whether or not a business operates in the building material industry is beside the point. By investing in supply chain visibility with an eye toward environmental friendliness, manufacturers in any sector can create a value proposition for customers that far too many competitors have yet to act upon.

For more information on how to curb exorbitant indirect spend management costs throughout your entire business, check out this blog post on the subject. You can also speak with a USC Consulting Group representative today to learn about how to achieve operational excellence anywhere in your company.

The U.S. food and beverage industry will have a lot to chew on in 2017, but some challenges may be harder to swallow than others.

Rise of the meal kit
For families everywhere, the all-in-one complete meal in a box delivered to your doorstep seems too good to be true. And in a sense it is – according to a 2016 study from market researcher NDP Group, only 3 percent of adult consumers in the U.S. have actually tried meal kits. Granted, that’s still millions of people, not counting the millions more who will follow suit when big-name food companies join in on the venture. And they definitely will.

While many meal kit startups struggle to scale with a meteoric spike in demand over the last few years, their presence alone has irreversibly reshaped the food and beverage industry and revealed a value proposition for the F&B establishment. Another study performed by Fast Casual found millennials “are twice as likely as their older counterparts to have used a meal kit service within the last three months.” Meal kits have piqued the interest of the now largest generation of consumers. The industry will have to respond somehow. But is the meal kit phenomena more than a mouthful for F&B companies? Can their appetite for high profits be more than enough to digest this new market?

“Evolving operations to accommodate meal kits has already proven risky.”

Evolving operations to accommodate such a product and service has already proven risky. While big names in food and beverage may possess the capital to survive the disruption, this seemingly small shift in consumer demand actually affects the full length of the traditional supply chain, from sourcing ingredients all the way to end-user distribution. With so much in flux, the potential for profligate spending or exorbitant management costs are high.

Businesses that have subsisted for decades on legacy suppliers will have to forge new partnerships. Production teams may require new assets to prepare and package their own meal kits, or at the very least, contend with a slew of new machine changeovers in need of standardization and continuous optimization. Direct-to-consumer delivery will, in most cases, assuredly call for an expansion of current logistics network, reliance on a third party for that crucial last mile, recruitment, and job training. It is reasonable to expect the food and beverage industry to focus its attention on reducing costs for conventional operations while it works out the kinks in new processes. Only then can they rival popular meal kit startups and familiar competition also looking to adapt.

Fall of the sugary drink
In 2016, the World Health Organization released a study calling for a 20 percent tax hike on sugary drinks to significantly reduce consumption and thus prevent health conditions like obesity, diabetes, and tooth decay from corroding global health.

Sugary drink taxes will push beverage makers to think outside the bottle.

Even though opponents to the WHO’s recommendation cite lack of evidence that regulation will actually curtail consumption, cities in California and Colorado have instituted taxes, according to Food Business News. Sugary drink taxes have also come to vote several times over the years, albeit unsuccessfully, and F&B interests will no doubt challenge taxes as government overreach.

Nonetheless, beverage makers targeted by such taxes should prepare for the worst and hope for the best. Operational cost-cutting measures today could feasibly soften the blow from a steep drop in consumer demand and free up funds for innovating new products that appease the thirsty masses and their low-sugar standards. To start, beverage producers should map out their production lines and look for major areas of material waste. Use the milk industry as an example: Research from Design World Online revealed inefficient plant designs can lead to about 3 percent product losses daily. Business leaders should focus their attention on equipment cleaning operations and packaging, then continue on from there.