This timeless research paper lays out the 10 key, very practical strategies for managing total cost, cutting across the 3 phases of the acquisition/procurement life cycle (Pre-Award, Award, and Post-Award). When applied systematically and critically against all acquisitions / procurements, procurement functions can drive significant value and rapidly identify and eliminate unnecessary costs. Procurement leaders can significantly benefit from creating a culture that systematically applies this 10 strategy discipline across their organizations.
Short case studies are employed throughout to illustrate each of the 10 strategies.
What are the key takeaways?
The 10 strategies to manage against unnecessary costs are collectively positioned across the entire procurement / acquisition lifecycle, with individual strategies applying to different phases. Often times, procurement professionals place most of their attention on cost management during the second phase (the “Award” phase during negotiations for example). As the paper mentions:
“Cost-cutting initiatives tend to focus mostly on the second step of the process: negotiation. To be sure, increasing competition and taking better advantage of the government’s buying power will save taxpayer dollars. But those efforts … do not address other root causes that lead to massive procurement failures.”
- Collectively, the 10 strategies presented are designed to address all facets of problems in the procurement/acquisition life cycle that can lead to bloated and unnecessary costs. The 10 strategies are grouped as follows:
Buy only what you need- 1. Estimate demand—know how much you need
- 2. Plan better, use less—separate what you need from what you want
- 3. Buy commercial—buy what people are already selling
- Buy smarter
- 4. Source strategically—coordinate and consolidate your purchases
- 5. Maximize competition—make it easy for vendors to save you money
- 6. Negotiate intelligently—know your bidders
- 7. Simplify and automate—keep it simple, stupid
- Manage for results
- 8. Manage supplier relationships—get what you paid for
- 9. Manage costs jointly—lower your supplier’s costs to lower your own
- 10. Manage internal and contract compliance—show me the money
The above strategies provide a very simple, yet powerful set of guidelines to apply to all acquisitions/procurements to determine which ones are most applicable and to ensure no stone is unturned – as mentioned in the paper:
“To be sure, some of these strategies are more applicable to certain types of goods and services.
But collectively, they form a roadmap for addressing all facets of the problem. Adhering to these strategies will require:
- A shift from focusing on mere price reduction to comprehensive cost reduction
- Collaboration across government’s organizational silos
- Early and ongoing engagement with suppliers
- Sustained investment in the acquisition workforce”
Full Report: Center for American Progress (CAP)
Image Courtesy of Stevepb
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