As executives and procurement managers face urgent budget pressure in response to the coronavirus pandemic, indirect spend may seem ripe for cuts, but may need to be protected — or even increased — to support the organization’s business continuity and recovery.
Making commitments in an uncertain environment can establish your business as a reliable customer of choice
“The most crucial area in which to be cautious in today’s environment is remote work technologies,” says Sam Berndt, Director, Research at Gartner. “Indirect procurement leaders should actually devote more attention to contracts around data security, cloud storage and VPN, spending more if necessary to make sure these systems are robust.”
Gartner recommends a three-pronged approach to cost optimization in this area.
Scenario plan with business partners
Challenge assumptions that indirect spending should always be first in line for cost-cutting. Discuss these types of questions with business partners to make sure pandemic plans incorporate thoughtful spending decisions:
- Can IT handle any increase in remote access, and can its help desk services function adequately in this new environment?
- Should marketing spend on in-person events be reallocated to digital channels?
- Can we renegotiate professional service contracts?
- Can we make reductions in travel expenses?
- What do we need to provide for critical staff to function at home?
Renegotiate with suppliers
Your organization’s indirect suppliers are under pressure to retain clients. Identify your most critical suppliers and work with them to assure mutually agreeable terms to maintain or expand services without increasing costs.
Making commitments in an uncertain environment can establish your business as a reliable customer of choice and put your firm at an advantage by avoiding cuts to services. Here are some common negotiation pitfalls:
- Outdated supplier data. Review the supplier’s profile, collect the supplier’s market, financial and organizational data, and fill profile gaps to determine what will be the likely negotiating positions of suppliers. Anticipate supplier objections, prepare responses to them, and build flexibility into your negotiation plan to evaluate and incorporate new information.
- Overly demanding posture. Interview the supplier to identify overlapping needs that would help procurement achieve its negotiation goals and preserve the supplier relationship.
- Limited understanding of business needs. Evaluate and select relevant questions that help uncover business needs and preferences to inform the negotiation plans.
Account for disruptions
A pandemic can impact global operations for months. Devote more time to indirect suppliers and increase the involvement of senior managers. Prioritize Tier 1 suppliers, those that are most critical to maintaining operational excellence for the organization and its employees. Communicate new expectations to the team about how your governance model is changing during this crisis.
For example, relationship managers may start checking in with Tier 1 suppliers weekly to anticipate disruptions or relationship changes. Category managers may do monthly check-ins with their most critical suppliers. Indirect spend managers should assume they will need to become more proactive to maintain service levels at this time.
These steps can help reduce costs while maintaining critical services and also help to demonstrate procurement’s value to the business.