Cutting Costs is Too Easy by Kelly Barner

In addition to reading a number of supply management blogs and publications, I find it helpful to read sales articles. Sales professionals deal with many of the same challenges procurement professionals do. They also seem to have a better grasp of how we need to learn to collaborate and network in order to create mutual value, because the traditional approaches to selling have become less effective in the face of eSourcing.

In a recent post on “The Sales Blog”, author and sales coach S. Anthony Iannarino made the following statement, “There’s no reason to be irresponsible with money. There’s no reason to spend more than you should. Cost cutting is the path of least resistance; it’s not the path to greatness or to growth. No one ever became great, and no one ever had a greater offering, simply by cutting costs. Unless you are simply spending more than you should be, cost cutting is a short-term fix to a long-term problem.”[1]

While I can’t completely agree with the idea that cutting costs is easy, I think Iannarino has a point when he says it is the path of least resistance. When strategic sourcing was new, many procurement teams put 6, 7, or 8 step processes in place to help team members learn the new way of buying and to ensure consistency. But over time, the process has become more of a tactical checklist than anything strategic.

If we are looking to create value and align our results to the priorities of the organization, we need to do more than buy the same products and services for less than we bought them for yesterday. We need to innovate by finding substitutes, altering specifications, and addressing demand or inventory issues. Iannarino finishes his post by saying, “It’s easy to cut costs. It’s much more difficult to be worth paying more.” – a perfect example of why it is valuable to read sales thought leadership.

Sales wants to maximize revenue. Procurement wants to maximize value for spend. It is possible to accomplish both at the same time. What if, instead of asking our suppliers to charge us LESS for intricately defined historical purchasing habits, we challenged them to tell us why we should pay them MORE for something better suited to our needs. Once the initial shock wore off, what supplier would not jump at that chance?

Since sales professionals are compensated based on their ability to generate revenue, if we give them the opportunity to earn more, they will work to give us every reason to accept their pricing. Rather than locking down the specifications and contract terms, and then addressing the remaining variable of price, we open up as many points of discussion as possible and then see how much we can get for a dollar.

We still have to manage cost efficiency and measure savings, and the approach does not make sense for every category of spend. On the other hand, it would give us an opportunity to be more strategic than following a checklist. Then again, when we consider the things our organizations are looking for us to do:

–       Create value: check

–       Collaborate with suppliers: check

–       Innovate: check

As the focus of procurement leaders shifts to long-term impact, any approach that gives us an opportunity to build a category up rather than cutting it down, becomes a competitive advantage.

We know we need to better leverage our suppliers and their knowledge, so why not take advice from their thought leaders on how to do so?

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