How a company manages direct and indirect spend has historically been the procurement organization’s primary focus—and in some companies, procurement still focuses on driving “committed value” from third-party spend. In other words, procurement negotiates the best possible terms from suppliers, puts in place the relevant contracts and buying channels and trusts the business to use those appropriately.
Some forward-looking procurement organizations have moved beyond “commitment to value” and are working closely with the finance organization to proactively manage the company’s spend. But this approach still leaves value on the table, because procurement remains focused primarily on price, which is just one of many levers that affect value.
To take the next step in its evolution, procurement needs to identify the full range of opportunities to remove costs that aren’t creating value by applying a zero-based perspective (ZBx) to all of the company’s third-party expenses.
With ZBx, a company forgets about the past and reimagines its cost base not from what it was or is, but what it should be if the company were to start from scratch—and then uses the resulting savings to fund investments in innovation, distinctive capabilities and specific activities that drive growth.