What is your roadmap to deliver 5% EBITDA margins in 2023?
The top 1% of Procurement CPOs are solving big challenges of 2023 and beyond, whereas the rest of the 99% are preparing for "keeping the lights on" as a priority! This is how I will set my goals for 2023
1.) Priority Areas for Cost Management = 30%
2.) Risk Management and Negotiation Excellence = 20%
3.) Aggressive Automation = 10%
4.) Digital Process Governance = 20%
5.) Sustainability =20%
Let me expand on the first point.
1.) Define Priority Areas (30% of your KPI)
A - Identify Cost impacts and define your negotiation leverages (Volumes or Product Substitution or Vendor Competition). Identify and Deliver Quick Wins here.
I have previously spoken about Gain-Pain share models with your vendors. I'll be making a video on this.
Also, Do some Data Analytics that is actually used! I want you to find 4 opportunities today.
-- Single Source Spend and possible diversification (either with new vendors or product substitution)
-- Product Demand that you can commit today irrespective of market conditions (absolute bare minimum demand) and the vendors likely to get the share
-- Top 10 cost drivers of your spend (Capex and Opex). Link them with the commodity market, if you can. Or, develop price impact systems with your vendors.
-- Consolidation: If you have >5 vendors for a particular product, you should absolutely consolidate if you can. Because I feel the Tail Spend approach in 2023 is not going to be about 80/20 split. It is too old now and doesn't reflect modern-day challenges. More on this later.
B - Be Agile in Procurement Operations and Respond Faster to sudden market changes. Do you need benchmarks? Here is my ambition
a.) Vendor Onboarding : 3-4 Hours
b.) Indirect Purchase : 3-4 Hours (Possible through Self Self Procurement)
c.) RFQ for Indirect Purchase: 2 Days
d.) 80% of Complex Procurement/Tendering: 4 Weeks
e.) Shipment Followups/Dispatch Updates: Automated
f.) Invoice creation and validation (3-way match): Auto (already a norm these days)
I'll make a video on this later.
C - Game Plan on How will you Negotiate your 80% Spend in 2023?
Do not tell me you will continue your table-banging approach for every negotiation. Do not be so basic in 2023, please! I'll make 50 more videos on How to Negotiate if your buyers still dont know how to negotiate and how to prepare for negotiation in 2023.
Develop New Cost Models for your strategic spend. Tie them up to market movements but establish organization-specific levers to agree on discounts.
I will cover the rest of the points in my next post!
Follow Supernegotiate for more such reminders!
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