The Revolving Door of Corporate Procurement & Resulting Bottom-Line Vulnerabilities: Part III
As detailed in the last installment of this series – a marathon sales process, which saw four changes to our category contact over a 39-month period, had finally resulted in a signed agreement. We were, at long last, getting the chance to “do our thing” for a new Fortune 500 client. Before we detail the results, let’s take a moment to review the background facts:
- The client, an industrial conglomerate, had grown rapidly throughout the 3+ year sales process, primarily by acquisition.
- An already-lean corporate procurement staff was now loaded with new work as large acquisitions were being assimilated. Lower-tier expenses inevitably garnered little to no attention during this time.
- The category involved in Fine Tune’s offering—uniform rental—fell into this lower tier of expenses, despite involving thousands of uniform wearers and millions in annual spend.
- As personnel and responsibilities were shuffled and reshuffled from 2015-2018, indirect categories like uniform rental went largely unmanaged, leaving these areas vulnerable to revenue growth strategies by the client’s two main national suppliers.
- Even if the client’s category managers had time to dedicate to a lower-tier expense like uniform rental (and they didn’t), they would have been playing at a significant disadvantage in this area due to a lack of subject matter expertise in this highly complex category.
- So, the decision was made at the end of 2018 to bring in Fine Tune’s experts to assess, audit, strategize, source, and manage this burdensome expense.
- In 2019—in a category which year after year had brought headaches but no savings—the results started pouring in.
The primary project objective was cost savings. So, after years of no reportable category initiatives, our client was thrilled to see that 2019 brought ~$650K in hard-dollar savings. But that doesn’t come close to telling the whole story.
During the process of securing the savings, Fine Tune’s experts managed to reduce the client’s total supplier contracts from five to two, eliminating multiple acquired agreements.
Beyond the hard-dollar savings, the new supplier agreements—written by Fine Tune’s industry insiders—dramatically improved the client’s protections against cost creep and back-end liabilities.
Off-contract spend—which had comprised 25% of the client’s program—was eliminated in the process. These items and services—previously uncompetitive and unprotected—were now locked in at rock bottom pricing.
Upon implementation of the two new and vastly improved agreements, Fine Tune led a massive inventory reconciliation and merchandise upgrading campaign, leaving the client with accurate inventories and better-quality uniforms across the country.
But there's more
With certain indirect expenses, the efforts leading up to the implementation of a good deal are only half the battle. In the uniform rental category, you don’t get what you sign up for without dedicated and vigilant enforcement of the deals you put in place.
Furthermore, opportunities exist to bend the cost curve further downward—instead of having it creep back up—if you’ve got experts on your side. This was borne out in the first 12 months of the new contracts alone, as 2019 rolled into 2020:
- Across the two main supplier agreements, in the first 12 months post-implementation, $223K in credits were recovered due to continuous overcharges caught by Fine Tune’s proprietary auditing software, eMOAT.
- Absent this continuous auditing, the client’s run-rate today would be ~$6K/week higher than it should be pursuant to the contracts. (NOTE—all auditing results were caught on invoices which had been approved by field personnel and subsequently paid by the accounting department.)
- An additional $135K in program optimization was driven by virtue of various initiatives:
- Changes to the client’s floor mat rental program; optimizing type, quantity and service frequency
- Identification of products on the client’s invoice which did not actually exist
- Vigilant management of loss and ruin charges throughout the account
- $785K in hard-dollar savings through improved agreements and post-contract optimization
- $223K (and growing) in cost avoidance from continuous auditing
- Improved program quality and service due to vigilant and expert management
- And all of this happened while the client contacts were immersed in other projects
And a humorous final note—the client contact changed twice more since the deal was signed in late 2018, making for six turnover events since the start of our sales process. Our client used to be vulnerable at these moments. Now, they’ve got a best-in-class program, continually managed and enforced by experts armed with highly sophisticated management tools.
Procurement leaders and P&L owners, ask yourselves:
“Is my Procurement department immune to these same vulnerabilities created by turnover events or the shuffling of responsibilities?”
Odds are, the answer is no…and you should be looking for ways to minimize your exposure, particularly by implementing lasting, strategic solutions for “nuisance” indirect expense categories.