The pandemic has had and continues to exert massive pressure on businesses across industry segments. Gartner survey shows that CFOs have already made material – if temporary – cost reductions, and most plan to implement more cost cutting in the second part of 2020 and in 2021.
Gartner survey of over 100 CFOs indicates that a 2-year (2020 and 2021) cumulative cost reductions will range from sub-10% to a high of 26% through a variety of actions including staff reduction, real estate consolidation, spending deferrals, among others.
Despite these significant actions, Gartner findings indicate that most firms are leaving 50c on the dollar – if not more – on the table by failing to fully leverage their purchasing power, as best-practices Strategic Sourcing shows that most firms can generate a permanent 20% cost reduction.
The gap to best-practice Strategic Sourcing performance is further widened considering that the top 3 categories for spend reduction in the Gartner survey are volume adjustments rather than fundamental unit price improvements. Marketing cost reductions are a result of temporary spending cessation. Real Estate and Human Resources cost reductions are a fundamental adjustment to business needs including fewer employees, and office space adjustment due to layoffs and expanded WFH operating models.
In totality, Gartner data indicates that firms can more than double efficiency of their cost reduction efforts on a permanent basis. Needless to say, deploying effective Strategic Sourcing initiatives requires expertise, time and executive support but the results can substantially shift a firm’s profitability curve to support sustainable profitability and fund growth initiatives.
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Sourcing Advisors Group is offering a no-cost Spend Assessment to help CFOs and senior leaders define the potential benefit of a robust Strategic Sourcing initiative. Please contact us at sourcing@SourcingAdvisorsGroup.com or call us at 415.426.6744 to discuss a no-obligation Cost Reduction Opportunity Assessment.