Published on March 14, 2014
RFX SPEED TO SAVINGS A Best Practice RFx Process can Deliver 40% More Annual Savings Discussion Topic: CPO Executive Roundtable Discussion Ritz Carlton HMB CA March 2014 William Kohnen March 2014
Executive Summary • Chief Procurement Officers and Vice Presidents of Purchasing can accelerate and deliver significantly more actual savings by focusing on RFx process. • An efficient RFx process can deliver 40% more annual savings • To realize full savings need right balance of People that know the spend categories and markets Process which supports companywide efficiency in capturing total benefits Tools which support overall process and specific needs of different spend profiles William Kohnen March 2014
Annual Savings Gained or Lost Based on RFx Time 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% $- $50,000 $100,000 $150,000 $200,000 $250,000 0 week 4 weeks 8 weeks 12 Weeks 16 Weeks %SavingsLost TotalSavings Savings First 12 Month From RFQ Lost Savings % Lost Example Based on Spend of one million and savings potential 20% William Kohnen March 2014
How to accelerate the process Action Advantage Disadvantage Best Use Hire a subject matter consultant • Only incur cost when working on project. • Best Market info. • Expensive in absolute terms. • Consultant retains knowledge and creates dependency. • Consultant controls process. Unique and infrequent items that are not core to your business Hire a Direct Employee Commodity Expert • Lower overall cost • Follows your process • More Control • Headcount spot used for person with narrow focus. • Might be harder to integrate into team. For high spend areas core to your business William Kohnen March 2014
How to accelerate the process Action Advantage Disadvantage Best Use Focus on process and develop templates and policies • Can replicate process across categories. • Organizational buy in to process. • Does not require as many Expert Level Category Professionals. • Great training opportunity for mid career Buyers. • Developing and getting company buy in is challenging and must be done by CPO or VP Purchasing. • Lack of Category expertise may sometimes not capture full savings opportunity. Good for “B” level items with high spend but not critical and lots of potential suppliers Utilize Online Tools • Tools enforce and support process. • Added Visibility • KPI Tracking • Integration with Analytics and Enterprise Systems. • Tools do not replace knowledge. • Bad tools divert attention. • Additional Cost requiring ROI. • Low Spend and Low Priority Purchasing. • Process Support for More Critical Spend. • Better use of Big Data Analytics. William Kohnen March 2014
Summary • RFx Process itself can add or take away from total savings realized • Responsibility for RFx process health is at the top • Key levers for improvement: People, Process, and Tools • Optimizing levers and process varies depending on organization and also commonly used spend analysis methods such as Kraljic or others. William Kohnen March 2014
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