Tackle the hidden costs to make further savings

With the economy in the doldrums everyone has their eye on driving efficiencies and outsourcing non-core activities is one strategy increasingly employed.

This means that supply chain management in some organisations can be more than procuring products and services to the business. It is often about managing suppliers on behalf of clients as well. Driving more competitive pricing can reach a point where negotiating better deals without thinking differently about where the cuts can be made, could start to compromise quality. 

Tackling the hidden costs in back of house activities such as pricing, invoicing and communication processes is not a bad place to start. It is estimated for example that an invoice that is rejected because of inconsistencies with the quoted price can take up to 74 days to process (from receipt to approval) as complex and multiple queries are dealt with by both supplier and the supply chain management function.

Putting technology at the heart of automating these processes is key to stripping out these resource-intensive activities. Mindful of the fact that smaller businesses have less resource, less experience of larger scale processes and often use unsophisticated technology, the challenge of leading and driving change can be difficult.

For example, automating the verification of invoices from suppliers for work carried out sounds simple. It does however require a virtual cost model to be created based on pre-agreed costs for time, attendance, as well as products and materials that may be required for the job from which the software calculates a cost. This requires the supplier to build up a database of costs of labour and materials without applying them to a particular job. 

Yet a system such as this is more efficient for suppliers. Rainham Group who provide refrigeration and air conditioning services to more than 110 client locations have been working with Bellrock for over eight years. They estimate a saving of a full time invoice administrator at £20,000 a year, as well as over £2,500 a year on postage and stationery.

The successful implementation requires a programme of communication underpinned by real understanding of the possible barriers to change. Case studies such as that of Rainham Group have been written that showcase the benefits of the system and the cost savings for suppliers.

A micro-site was also created to guide suppliers through the process. The site has a series of how-to guides as well as a programme of webinars that demonstrates the technical aspects and processes within the system, and of course it reinforces the benefits of using the system.

In retrospect a robust change management process has been at the heart of migrating suppliers on to this more efficient system. This is not what we may view as core competence for the supply chain management function, but if we are going to deliver more value then we have to do things differently. The nature of procurement is working with different businesses so we have to learn how we can lead this change and to create value for our suppliers and in turn for our stakeholders and clients.

Anna Williams is procurement and supply chain director at Bellrock

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