Wed 06 February 2019
The bit above the water, that’s the buying. Employees respond to this bit either with a roll of the eyes because they have a procurement function that insists they do tender processes; or with mixed excitement and anxiety because spending someone else’s money is so much better than spending your own, even if it comes with responsibility.
A bit about icebergs: An iceberg starts life full of energy as it breaks away from a main glacier, as it moves to warmer and busier waters where life starts to thrive the new environment attacks it from all sides. On the iceberg surface, warm air melts snow and ice into pools called melt ponds that then trickle through the iceberg causing ever bigger fissures and cracks below the surface of the water.
The integrity of your procurement iceberg co-relates directly to the health of your organisation, with the procurement benefits going directly to your bottom line. So you could already be at 30% profitability but if your iceberg is one of the ones that has a big hole below the water line then you should be in awe of it since it represents an opportunity to increase your profitability to 40%. What could you do with that extra profit?
In a £10m turnover business operating at 30% profitability you need to reduce your cost base by 15% in order to achieve that 10% profit growth; or you could increase sales by 40%.
Any takers for doing both??
If doing both, and yours is still one of the procurement icebergs that has that picturesque hole below the water line then, like many other businesses before yours, you will likely default to finding that 15% on your internal costs only: headcount reduction. If half of your cost base is internal then you will be seeking 30% headcount costs reduction. This will either be a non-starter or can be healthily achieved using automation which will likely increase supplier spend in an iceberg environment that already has cracks, holes and fissures.
For businesses who think that investing in procurement is only for those businesses that are already achieving fantastic profit margins lets cut the numbers a different way:
In a £10m turnover business operating at 10% profitability you need to reduce your cost base by 10% to achieve 10% profit increase. You’d have to double sales.
For those of you are seeking to build a solid procurement iceberg in 2019 this is the first in a series of blogs that sets out the layers that an organisation should seek to build below the water line. To make sure you receive the full series then subscribe here.
We will also be running a free workshop on the 20th February to help businesses put in place an action plan for establishing a rock solid procurement capability in 2019 both above and below the water line. If you are serious about delivering savings in your business in 2019 register here.