RL-018 Ver 1.0 (Jan 24)
The priorities of Procurement have shifted in the last few years due to various factors, including the global economic slowdown, the rise of e-commerce, and the growing emphasis on sustainability. The emphasis on cost reduction and inflation management is crucial to the long-term success and financial stability of all businesses. These changing priorities reflect the evolving landscape of procurement. As industries continue to respond to dynamic challenges and opportunities, aligning strategies with these key priorities will enable organizations to remain competitive and achieve sustainable growth, reducing spending costs, improving spending efficiency, and managing inflation remain our top priorities.
Introduction
Key Elements and Priorities for Driving Savings
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Negotiation of Savings - A Guide
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The Value Proposition to Drive Savings
Improve
Data Analytics
5
Accelerate Digital Transformation
4
Reduce
Spend Cost
3
Manage & Mitigate Inflation
2
Reduce Procurement Risk
1
Communicate
intentions
3
Agree on the numbers
Communicate internally of the intentions and
check for any potential to group negotiate
Communicate to suppliers the intention to review and obtain buy-in, avoid surprises at the negotiation table
Identify the
Opportunities
2
Analyse the spend on the Category to better understand the size of the potential opportunity.
Determine from this spend which is "Addressable" and Non Addressable spend.
Define the
requirements
1
Define the KPI's and Savings measures to be implemented across the Category and how these will be measured.
Contract Compliance:
Managed spend on Contract/ % Total Spend under Management
ROI:
Cost Savings (Cost Reduction)/Total Cost of Expense
(Cost Avoidance may or may not be included)
Short Term Saving Strategies - Examples
Challenge the terms of the existing contract. It’s an acceptable practice in procurement to revisit current contract terms. Any contract not reviewed for over three years is likely to have some elements that have become uncompetitive and outdated. Economic environments change, consumer consumption patterns shift and technology which influence the Contract elements.
An example of this is Janitorial cleaning specifications. Where the staff numbers have changed or shift patterns of the office have changed this will impact the overall cost of providing the services. Work with the Contractor to help review this and agree on new specification inputs to reduce the output costs.
Auditing of Suppliers and their performance ensures that services provided remain in accordance with the Contract. Where possible look to include "stretch" targets for KPI's in the contract that ensure continuous improvements and invoke innovation.
Benchmarking of Suppliers pricing including their services and equipment/technology used ensures that the Supplier we have contracted with remains at the forefront of both Price, Innovation, and Service quality. Use the Benchmark data to discuss with the Supplier and re-configure prices and services, where and when required.
Re-visit Contract Terms
Challenge the Specifications of the Services
Audit suppliers regularly
Complete Benchmarking
Detailed List of Strategies - Proceed to Page 2 (Click here)
What are the triggers for Driving Savings?
Improve Data Analytics
Accelerate Digital Transformation
Reduce Spend Cost
Manage & Mitigate Inflation
Reduce Procurement Risk
5
4
3
2
1
Transitioning
of Supplier
5
Program Optimisation - Change of SOW
4
Renewed Savings Directives
3
Cost-Plus Supplier overspending
2
Contract sunsets within
6 months
1
RL-018 Ver 1.0 (Jan 24)
Strategy
Description
Direct Negotiation with Supplier
Direct negotiate with incumbent Supplier to determine best options to offset increase (ie., - SOW optimisation, frequency, specification modifications, fixed prices) etc,
Manage RFP initiative to test market and ID all qualified Supplier and service delivery options
Competitive Sourcing Event (RFP)
Explore alternative brands, service approaches, materials, specifications, etc,
Alternative Products / Services
Seek improvements in how maintenance and / or equipment can be delivered to and maintained on site (ie- automation of servicing - Robotics in cleaning or Security are examples)
Demand Innovation improvements
Re-engineer the SOW to fit Client specific requirements or those requirements that meet the Client objectives (2 x distinct differences) (Conduct Scope Gap Analysis).
Reengineer the SOW
Consolidate work with other projects/Client requirements to increase potential spend discounts (may require detailed RFP)
Consolidation / Bundling
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Savings
Term
Typical Savings Outcome
Effort / Time
Short-Med
Low-Med %
Low / Immediate
Med-Long
Low-Med %
High / 1-3 months
Med-Long
Low-Med %
Low / Immediate
Med-Long
Low-Med %
Low / Immediate
Med-Long
Low-Med %
High / 1-3 months
Med-Long
Low-Med %
High / 1-3 months
Fixed Price offerings
Fix Prices for the period of the Contract. This option should include clauses to remove or limit future increases based on inflationary measures.
Short-Med
Low-Med %
Low / Immediate
Negotiate out CPI increases for the period of the Contract
Direct negotiate with incumbent Supplier to absorb CPI increases for the period of the contract. This should exclude any Government mandate increases. This forces the hand on the Supplier to improve how they deliver the services and remain efficient
Med-Long
Med %
Med / Immediate
Capital Investments covered by the Supplier
Supplier to include Capital investments to be covered by the supplier on the basis that they hold the Contract for a defined period, subject to performance measures. This eliminates additional costs imposed on the Client for investment.
Med-Long
Med %
Low / Immediate
Free Servicing
For such areas as Air conditioning maintenance, negotiate the first 6 or 12 months as "Free" servicing. This will reduce the overall Expense cost during the contract period
Short-Med
Med %
Low / Immediate
Shared Profit on Cost reductions
Supplier to share profit on cost reductions as a result of efficiency and process improvement. This is usually taken as a cost reduction in the pricing.
Short-Med
Low-Med %
Low / Immediate
Quick Ship Program
Where Suppliers can hold inventory, and agree on terms to deliver stocks within a shortened timeframe. This allows for reduced inventory and expense costs payable by CBRE and Client.
Short-Med
Low-Med %
Low / Immediate
Risk Mitigation
Often a Suppliers cost includes an allowance for "Risk" associated with delivering the services. Work with the Supplier on how to reduce the overall Risk profile to reduce costs.
Long
Low %
Low / 1-3 Months
Reduce Wastage
Often with such Categories as Food, wastage is a significant cost factor. Suppliers should be encouraged to implement waste reduction strategies and have these documented.
Short-Med
Med %
Low / Long term
Recycle
Suppliers should be encouraged to implement a Recycling program, especially for used containers. Request this as part of any Contract negotiations and ask for a % discount.
Short-Med
Low %
Low / Long term
Reverse Bid / Auction
Conduct Reverse Bids or Auctions to have potential Suppliers compete for the business. Caution -Suppliers can often Bid low to win and then try to implement escalation clauses later.
Short-Med
Low-Med %
Low / 1-3 Months
Reduce Tail Spend- Roll up to SPD Suppliers
This is more about consolidation to reduce internal operational costs, but can be used as part of any discussions with Client to show operational efficiency.
Short-Med
Low-Med %
Low / Immediate
Negotiation of Savings - Strategies
Not sure how to Negotiate? - Please refer to Negotiation Basics (Click here)