The 8 Modules, 31 Focus Points and 5 Collaboration Phases of the SEIC Methodology provide a path to success

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Our Diagnostic Tool provides a gap analysis of SEI capability to support the strategic planning process

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In-depth explorations of the approaches and techniques used by leading organizations in the field of SEI today

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Thought leadership and insightful articles on the most important issues for companies pursuing an SEI agenda

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Insight calls are available to join for all members of the SEIC and will be addressing a number of topics

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Useful downloads, from unique research to practical templates, frameworks and tools being used by SEI leaders

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The 11 modules of the SEI methodology focus on the key processes that enable the successful rollout of SEI

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Our Capabilities Assessment tools provide the means for organizations to gain insight into their own SEI approach

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In-depth explorations of the approaches and techniques used by leading organizations in the field of SEI today

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Thought leadership and insightful articles on the most important issues for companies pursuing an SEI agenda

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Useful downloads, from unique research to practical templates, frameworks and tools being used by SEI leaders

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Harnessing innovation to reinvent cost savings

Conventional cost savings are shrinking in procurement – but a formal Supplier-Enabled Innovation strategy can provide a sustainable alternative

Innovation cost savings

 

Cost savings are an evergreen consideration in procurement. A means of increasing profitability and maintaining market competitiveness, reducing cost has long been the measure by which the function’s ability will be judged.

 

But are traditional cost cutting exercises the only means of meeting this expectation? According to research from our Supplier-Enabled Innovation Center, they aren’t.

 

Our study into the latest trends in Supplier-Enabled Innovation (SEI) reveals cost reductions as SEI’s most potent impact area, with a quarter of surveyed companies experiencing its positive effects. The finding suggests that conventional cost cutting exercises can potentially be replaced by an effective SEI strategy.

 

There is an important distinction to be made between cost savings in SEI to in traditional procurement. Whereas cost cutting exercises in the latter mainly focus on hard-line negotiating that can sour relations, SEI concentrates on innovations that sustainably reduce costs – and does so in the spirit of collaboration and co-development.

 

Take a manufacturer the SEIC works with as an example. While this company views conventional cost cutting methods as “jeopardizing” to its relationship with strategic suppliers, it found an alternative through SEI. By working collaboratively with its supply base, it developed innovative methods for reducing the weight of its products, resulting in the elimination of 30,000 tons of weight over a three-year period and a drastic drop in outlay.

 

There are numerous other innovations that a buying organization can work with its suppliers on to reduce cost, as well. Energy efficient, or ‘green’, manufacturing is a prime example. In 2013, the International Energy Agency (IEA) found that outdated manufacturing practices resulted in an estimated $80bn worth of electricity being wasted, negatively impacting the cost of production and, by extension, prices charged in the downstream supply chain. Collaborating with suppliers on the technologies that could help solve this problem would at once reduce costs, enhance collaboration, and advance sustainability.

 

While the chief aim of any SEI program is to drive value to the business and reduce procurement’s reputation as a back-office function, that it can also benefit procurement’s traditional metric is a huge advantage. It opens a new source of cost savings to the business, demonstrating to internal stakeholders that SEI will not detract from – and may in fact improve – procurement’s capacity to minimize outgoings.

 

It’s important to point out that these new cost savings can also be made in conjunction with SEI’s value-adding activities. Our research shows a host of value-adding benefits trailing cost reductions by only a small margin, with time to market mentioned by 19% of companies and revenue enhancement by 16%. The two are by no means mutually exclusive, meaning a formal SEI strategy can simultaneously reduce expenditure and drive additional value to the business.

 

Procurement is approaching a crossroads when it comes to conventional cost cutting techniques, with the amount of savings to be had in the supply chain quickly drying up. When combined with the ongoing commoditization of the function, a procurement strategy that continues to exclusively target these savings will soon become irrelevant to the wider business.

 

Incorporating cost savings into a formal SEI strategy provides a solution. It can satisfy conventional expectations of procurement, create value adding benefits for the business and, crucially, do both in a sustainable fashion.

 

Samuel Wrest

 

This content is produced by the Procurement Leaders’ Supplier-Enabled Innovation Center (SEIC). To learn more about membership to the SEIC, please email us.

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