In many organisations the procurement function is thought of purely as an administrative function and cost center, but addressing opportunities in this area offers a chance to add significant value to the organisation. Investment and focus on the procurement function can enhance business outcomes, improve the bottom line and help manage risk, especially during periods of rising inflation and supply chain bottlenecks.
A fast-growing global entertainment firm was lacking a true procurement function and had no staff dedicated to managing spend within each business line. The company did not have insight into the goods and services it was procuring and what was included in the contracts for those goods and services. It also lacked a clear picture on how those contracts were being managed, whether they were favorable or not, and where their money was outflowing from the various parts of their business.
The organisation engaged Protiviti to help establish a high-functioning procurement department that could provide operational efficiencies across strategic sourcing, contracting and procurement while driving better visibility of spend and ultimately achieving cost savings across major spend categories.
Capturing quick wins and outgrowing limited procurement ability
The first task was to set up an efficient, transparent process for categorising and analysing current vendor spend. The company was spending far more than it should on contracted products and services, and it had multiple vendors supplying similar services across various departments. Contracts negotiated years prior were automatically renewed on an annual basis, even if the services were no longer needed or were irrelevant to current operations. With a lack of procurement expertise and little visibility across siloed departments, the organisation was unable to leverage economies of scale and negotiating power to execute vendor contracts in the most cost-effective manner.
Protiviti used a third-party spend analytics tool to consolidate and categorise vendor spend data, create dashboards, identify trends and analyse individual line items within current third-party spend to uncover patterns and opportunities for vendor rationalisation, better spend leverage, and more favorable pricing, all pointing to significant savings. Meetings were held with decision makers within each business line to better understand the purpose of each contract and whether it had been reviewed recently to ensure its validity.
As part of this initial analysis, Protiviti worked with the organisation to create a custom taxonomy for the procurement function – a necessary step, as finance and procurement view spend very differently. Finance typically sets up cost centers that are organised by business line or department. But to gain clear visibility into expenditures within various categories, spending needed to be organised in a category and sub-category basis to be able to look across departments.
After reviewing each spending category, the team conducted an opportunity assessment for the top vendors to determine which contracts were coming up for renewal in the next year and had not been bid competitively in the last three to five years. By renegotiating and not renewing unnecessary contracts, the firm was able to capture immediate, significant cost savings. Identifying the services that had not recently been competitively bid enabled the procurement function to build its project pipeline, providing an ROI of 240%.