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Gartner’s Supply Chain Cost Optimization Playbook for Sourcing and Procurement Leaders

Source: Gartner’s Supply Chain Cost Optimization Playbook for Sourcing and Procurement Leaders, 20 March 2019

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

Gartner’s Supply Chain Cost Optimization Playbook for Sourcing and Procurement Leaders

As procurement’s overall strategic importance has increased significantly in recent years, so have their priorities. Optimizing costs is now seen as “A business-focused, continuous discipline to drive spending and cost reduction while maximizing business value” according to Gartner.

Opportunities for cost optimization could be hiding in plain sight, therefore procurement must leverage their strategic role in the supply chain and re-evaluate their tactics to ensure savings hit the bottom line.

While a lot of procurement’s focus should be on collaborating with their suppliers, this is often hindered by a silo mentality. Instead, they need to be proactive about engaging with their suppliers and forming deeper collaborative relationships to generate more business value. By doing this, procurement can find ways of identifying cost optimization opportunities and gain a competitive advantage and more favorable purchasing conditions.  

For example, throughout the negotiation process with strategic suppliers, it is important to structure and sign agreements with mutual benefits in mind. Although this is not always the case. Gartner states: “Unfortunately, in some cases, some of the benefits reflected in the agreement, such as price discounts, rebate payment and others, will not be realized if the buying organization lacks a governance process to ensure negotiated benefits are captured”.

Therefore, procurement should reassess how they leverage supplier agreements in pursuit of cost and efficiency gains. Gartner suggests that “Companies may want to incentivize suppliers by entering gain-sharing agreements, where savings obtained as a result of a supplier idea are shared between the buyer and the supplier.”

The same can be said when it comes to paying suppliers. According to Gartner, “Companies often end up overpaying suppliers due to the lack of standard procurement processes, or in some cases, due to suppliers not invoicing according to previously agreed-upon prices”.  

One of the recommendations from Gartner is to put a rebate payments tracker in place to track and validate negotiated rebates with their suppliers. However as is the case with virtually all business functions, manual processes continue to dominate procurement.  

As Gartner says, “Procurement continues to run many activities manually. It uses traditional technology to aggregate and clean data from separate systems to analyze spend. It also runs sourcing events using spreadsheets, often spending hours each week processing POs and reconciling invoices for the business.”

Now is the time to evolve and transform the procurement function. By following this playbook, procurement can identify cost optimization opportunities and be the key driver in delivering more strategic value now and in the future.

Download this white paper to discover:

Tactics to negotiate better pricing conditions and leveraging supplier agreements to gain a competitive advantage
Strategies to engage with your supply base to identify cost optimization opportunities
How to deploy digital technologies to automate and optimize manual procurement processes
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