The past few months have underlined how vital it is for companies to move swiftly to identify opportunities for resetting spend management. Emerging stronger depends on how successfully they’ve been able to do this.
As we’ve shown in the prior blogs, higher costs and supply chain challenges in some essential service spend categories can be offset against opportunities to reduce spend or negotiate better deals in others. This time round, I’d like to conclude the series by zeroing in on some of the key indirect spend categories.
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Recent events have reset priorities across global supply chains and dynamic responses are essential. Some categories of spend impacted, like logistics, are crucial for ensuring business continuity, and others, such as facilities management, must address challenges to workforce safety and associated operations.
By understanding how the landscape has changed (and keeps on changing), CPOs can dynamically fine-tune their budgets and reimagine their supply chains, unlocking funds to invest in key areas as needed. Our “bending the curve” approach, introduced in the first blog in this series, provides a structured process for doing just that – whether spend reinvention is tech dependent, demand-driven or market-driven.
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Spotting opportunities in facilities management
Facilities management, an area of spend significantly impacted, has been in the spotlight since the pandemic began. While the need for remote working saw a drop in spend on facilities for many companies, as markets have tentatively reopened, we’ve been seeing spend increase in some areas.
The requirement for robust health and safety measures means companies will most likely have been prioritizing sanitation, waste management and janitorial services in recent months, with higher spend than usual in these areas.
But there’s also a great opportunity to apply zero-based budgeting (ZBB) approaches across this category. That might result, for example, in renegotiating deals with janitorial services providers based on potential volume increases, or shifting to outcome-based contracts where the focus is on cleanliness levels.
Existing contracts like integrated facilities management (IFM) should also be in scope for renegotiation. Now could be the right time to renegotiate rates with incumbent IFM partners to reduce costs per hour or square foot where there are COVID-19-generated local supply/demand imbalances.
New trends in maintenance, repairs and operations (MRO)
Right now, in the absence of full-scale operations, costs are likely to have fallen in this category in many areas. But as the situation normalizes, this will change.
Companies are seeing higher costs in some sub-categories (PPE and safety supplies, for example) due to global spikes in demand, limited production capacity and depleted inventories. In such cases, for many companies, the past few months have been a good time to investigate the benefits of procurement platforms that can dynamically connect buyers with sellers of critical supplies.
As companies seek to reduce social proximity and protect their people, we’ve been seeing greater reliance on augmented reality and virtual solutions for repairs. Companies are exploring remote reliability assessments to build futuristic capabilities for integrated asset management using the internet of things (IoT) and platforms to lower maintenance costs and improve the reliability of manufacturing operations.
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Opportunities for renegotiation and government support in utilities
With consumption still much lower than usual, companies may be able to negotiate delayed payments with providers. They may also be able to take advantage of low energy prices for the remainder of 2020 in locations/time-slots where there is a degree of load certainty. Government support may also still be available and, if they haven’t already done so, companies should check to see what’s on offer.
Logistics for supply chain resilience
Logistics is another category that’s been hugely disrupted by COVID-19, with major impacts on global transportation and supply chain operations. We’ve seen factory shutdowns, massive shifts in demand, and the virtual elimination of passenger airfreight capacity. Warehouse space has been difficult to find because so many companies have been building safety stock. And demand for trucking has been much lower than normal.
Of course, ensuring continuity of supply is vital. But there are also some outstanding opportunities to rethink logistics for the future by, for example, investigating the benefits of asset-light networks. In the shorter term, there may be opportunities to shift from air shipments to ocean shipments. That should be much more cost effective. It will also be more reliable, with sea freight likely to be much less susceptible to unexpected restrictions.
Scrutinize every category
Across all categories of spend, companies need to be thinking strategically. From facilities to logistics, they have to try to look ahead and recalibrate for a new world. That means trying to find answers to some tough questions. Will workers return to offices eventually? What about manufacturing facilities, how will they have to adapt? What additional changes will they need to make? And what impacts will the trend toward greater localization have on global supply chains?
One thing is beyond doubt: COVID-19 has had a huge impact on how companies are run. And it’s proving to be the catalyst for change in every spend category, indirect and direct. In this short blog series, we’ve highlighted multiple opportunities for introducing a “bending the curve” mindset. In an uncertain world, it’s a great way to emerge fitter, leaner and ready to compete – whatever the future holds.
If you think a more tailored discussion around any of the areas we’ve raised would be useful, we’d love to hear from you. Meanwhile, thanks for reading.
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