Understanding the Importance of Consumption Management
Businesses can only strip so much from their cost base and then the practice begins to hurt performance, rather than assist in overall profitability. There is a limit to how much price negotiation a supplier will permit, if they are to continue working with you the product’s quality may affect the performance of your own products and services, so the threshold of raw materials specification still has to be considered whilst re-considering who and what you procure.
The answer is less about making procurement slicker and contracts more aggressive, although this does play a huge part in the problem, it’s about understanding why you are consuming products and materials.
If you understand why there is a need, then you may judge which product or service is best procured and how it is used or effectively applied within the business. With clear understanding of use and application, you will be able to manage cost bases more accurately - not reactively, reducing your overheads as you manage the internal demand upon the procurement strategy and not just the supply.
In short, the cost management of the future is about consumption management - as a tactical and strategic management approach.
It is about managing your business extravagance, the eradication of waste and above all uniformity in materials or consumables use to permit better forecasting and budgeting.
It is not about implementing efficient automated procurement strategies that are flawed by the projections of business need often right from the very start.