Chambersburg, PA — April 4, 2011 — Procurement can be the hero for organizations looking to boost their bottom lines and gain purchasing efficiencies, but only if procurement professionals are armed with the right tools and processes to maximize savings.
According to CAPS Research's January 2011 benchmark report on corporate approaches to measured procurement savings, the average saved by the organizations surveyed was 4.26 percent. However, that number is skewed, because of the 78 companies responding some have little or no "direct spend" as part of their purchasing mission.
CAPS Research is an arm of the Institute for Supply Management and Arizona State University. To compile its benchmark report, CAPS surveyed mostly large companies across a variety of industry sectors from across the globe. Respondents ranged from 3M (industrial conglomerate) to General Mills (consumer package goods) to IBM (high tech), Warner Brothers (entertainment), and PricewaterhouseCoopers (professional services).
Had those surveyed, even those reporting little direct spend, been using an optimal procurement process, the 4.26 percent reported in savings may have been improved tenfold to 42 percent, according to William Gindlesperger, chief executive officer of e-LYNXX Corp.
"That is the average in measured savings that large organizations in the United States and Canada are reporting when they use a patented automated vendor selection procedure and related best practices," Gindlesperger said. "In addition to impressive cost reductions, they are reporting full accountability for both buyer and vendor stakeholders, total transparency, thorough data collection, stronger quality controls and greater efficiencies."
To get a feel for the impact, look at just one major area of procurement: printing. Organizations spend approximately $90 billion on outsourced printing in the United States each year. If 42 percent of that could be saved annually, that would be $38 billion that could be redirected for other purposes such as new jobs, new facilities, increased marketing and direct mail, employee health care, product development, debt reduction and profit.
Savings at this level are achievable when the following are applied, Gindlesperger said:
1. AVS Technology: This patented procedure automates the selection, from the buyer's own vendor pool, of those vendors of custom goods and services (such as printing, textiles, temp services and machined parts) that are qualified to produce a given project when compared to the exact requirements of the project specifications. This procedure applies to all computer-operated systems that match vendor attributes with project specifications to identify vendors qualified to bid on custom goods and services.
2. Vendor pool: Vendors must be uniformly and objectively evaluated. Only those meeting buyer-established criteria are acceptable. Numerous vendors must be maintained to assure competition.
3. Equal opportunity: Qualified vendors matching project specifications should be invited to submit a bid. No vendors should be arbitrarily added or removed on a job-by-job basis. In this way vendors have the freedom to bid low margin rates without negative consequence and without being held to the low price next time.
4. Budget development: An estimate methodology should be used for projects that lack complete specifications such as quantities or final schedule.
5. Request for pricing (RFP): RFP's should be released only after finalizing specifications. This allows vendors to plan and price on the basis of available capacity and resource.
6. Timely award: As soon after bid closing as possible, projects should be awarded to the qualified vendor that has submitted the lowest price. Vendors need to understand that performance is required to receive opportunities, while price is the criteria to win work.
7. Results disclosure: Following award, responding vendors should be provided with a list of vendors that bid, the prices submitted and the winning bidder. This full transparency allows vendors to see competition and market dynamics, promoting improved future competition.
8. Accountability: Buying organization needs to complete responsibilities on time. Costly production delays should be avoided due to buyer issues.
9. Vendor performance: Poor delivery, non-responsiveness, lack of attention to detail, or failure to meet commitments is not tolerated under any circumstances.
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