I joined Royal Mail’s group finance function last year and was immediately launched into a cross-functional cost-saving initiative with the procurement team.
The high-profile initiative, called the ‘Managing our costs’ programme, focused on cost improvement opportunities from suppliers and through internal process improvements. The programme had CEO sponsorship and senior support and was led by group procurement director Kath Harmeston. The objective was to deliver focused, measurable benefits in terms of costs and cash within a tight timescale of six months. It was clear that the finance and procurement relationship had to evolve to meet these new demands.
The project team had to engage the rest of the finance team as never before to ensure benefits were understood, ratified, and traced back to budgets. This was supported by the development of a common language to report procurement delivery. A common mistake procurement departments make is to use a different language and methodology around benefits. We aligned our language and developed an understanding in procurement of how benefits are treated financially, so that projects could be translated into our financial reporting.
A key lesson we have learned is the importance of ensuring procurement is engaged early enough in the budgeting process, so that budget holders embed the savings. It is much more difficult to ensure procurement savings come off budget lines at the end of the financial year. This is being taken forward by a new finance director’s forum, a monthly meeting where senior finance leads discuss procurement opportunities and benefits – a first at Royal Mail.
We’ve also worked on the benefits sign-off process to ensure clarity, consistency and alignment between budget holders, departmental finance colleagues and the central finance team to ensure sight of delivery in the accounts. This has allowed the procurement team to focus on developing and executing commercial procurement solutions.
A seal of success has been the inclusion of procurement’s contribution to the company’s performance in our most recent annual accounts.
And it will continue to pay dividends, for example, together we are bearing down on discretionary spend, jointly challenging orders and tackling non-compliant behaviour. The result has been a 30 per cent year-on-year reduction in discretionary spend.
A review of P2P process is the first step. Ensure business critical spend gets approved swiftly, but discretionary spend should be challenged. The challenge should be done on the basis of agreed criteria.
Accurate, meaningful data is key. Reporting on discretionary spend is sent to key members of the finance team on a weekly basis. A monthly call is held with senior financial approvers to agree what action needs to be taken.
Key projects so far have included moving all business travel bookings online, resulting in a 25 per cent reduction in spend, and a telecoms ‘amnesty’, which has seen more than 150 packages of unused equipment returned.
Effective communications are key to changing spend culture in the organisation.
☛ Ian Hayward is head of special projects, finance, Royal Mail Group