Time to Take Action on “Under the Radar” Expenses
As corporate procurement departments have gotten leaner and leaner, and buyers have been asked to do more with less, it only stands to reason that “under the radar” expenses—representing relatively low spend volume priority—tend not to get the same attention as they would if procurement resources were more robust.
Low spend volume does not necessarily equate to a lack of savings opportunity, though, as these less-managed categories tend to be the places where supplier margins are fattest.
This is a cost of lean procurement: the inability to act on good opportunities in “under the radar” categories.
Classic “under the radar” expenses: uniform rental, waste & recycling, pest control, and security & guard
For a plant to operate, the uniform route-person, the waste hauler, the pest control individual, and the security guard have to, at the very least, show up for regularly scheduled service.
The uniforms have to be delivered. The waste has to be hauled away. The pests have to be controlled. The security has to be maintained.
And so, when the contract is about to expire, there is a brief moment in time when these “under the radar” expenses overcome whatever internal corporate inertia usually prevails in these areas; these lower tier expenses move to the top of a busy buyer’s list of priorities, but that focus never lasts long in a lean procurement department.
Soon enough, a new agreement is signed, or a renewal/extension is granted, and the buyer returns to focus on higher priorities.
This strategy, if you can call it that, is entirely reactive: an impending contract expiration demands attention. A new commitment is made. Attention moves elsewhere, until it is demanded again.
Internal corporate inertia = missed opportunities
As experts in understanding these complex “under the radar” expenses, we find that our biggest source of competition is internal corporate inertia.
While failure to secure services for uniforms, waste hauling or pest control could be a disaster at the plant level, nobody turns into a pumpkin if you don’t start saving 30% or 40% on those services next week—even if it’s completely possible to do so.
In lean procurement departments, we’re finding many buyers are only working on that which is completely non-negotiable at any moment in time, and they’re lacking anything but a reactionary strategy for most of their portfolio of expenses.
If we lose a deal at the category manager level, the reason for not engaging us is frequently, “Oh, well I’m working on MRO,” or, “I’m currently working on energy,” or, “I’m working on logistics, so I couldn’t possibly look at that right now.”
All of this translates to: “I don’t have a strategy for the stuff I’m not actively working on at present.”
Ask the tough questions
It’s our recommendation to P&L owners and procurement/finance leaders to ask your procurement team members the following two questions:
- What categories are you deeply immersed in right now?
- What’s your strategy for the categories you’re NOT deeply immersed in?
Odds are, you won’t be terribly impressed with the answer to #2 and a teachable moment may emerge.
We often say you can be good at your job by doing good work across your biggest priority categories. But, to be great at your job requires a strategy across your entire portfolio—even the categories you aren’t actively working on at present.
Your suppliers know you’re lean, which makes you a target. In environments where procurement is increasingly asked to do more with less, having a strategy across all expenses—not just your highest priority categories at only this moment in time—must be non-negotiable.