Despite the underlying premise that United States manufacturing is a dead or dying business, manufacturing here in the states is alive, well and actually on the incline.
“The U.S. is fast becoming one of the lowest-cost countries for manufacturing in the developed world,” says CNBC, citing the Boston Consulting Group. BCG found that the average manufacturing costs in Germany, Japan, France, Italy and the United Kingdom will be 8 to 18 percent higher than the U.S. by 2015. So is manufacturing dead? On the contrary, it is increasing.
Watch for hurdles to overcome
In our soon-to-be-published book, “Maximizing Profits Immediately: How to Dramatically Improve your Company’s Bottom Line,” we continue the program started by Harry E. Figgie that helps manufacturing companies compete more effectively. Many people believe that the U.S. cannot compete in a global environment. This is simply not true; however, manufacturing does have some distinct hurdles:
There is no question that the manufacturing sector does not dominate the U.S. economy. In the past 60 years, the U.S. employment in manufacturing has wavered from 50 to 10 percent. If you measure this by the gross domestic product, the manufacturing share of the economy has fallen by 25 percent in the 1950s to 11 percent today.
While there is a profound shift, the collapse that we are so-called witnessing is simply a hangover from the earlier 2000s, when the number of workers declined from 17.3 million to 13.5 million. More than 4 million jobs were lost in manufacturing from the U.S. not being competitive and outsourcing. Since 2003 this has stabilized at low levels, and in the last several years manufacturing employment has actually risen for the first time since the late 1990s.
Manufacturing is moving forward, growing, thriving, competing and doing well. U.S. manufacturing still accounts for 50 billion exports every month. If you measure manufacturing on a stand-alone basis, it is still the eighth largest economy in the world. One in every six private sector jobs is in manufacturing.
An edge on global competition
Today, the manufacturing sector employs 12 million people or 9 percent of the total workforce. It also accounts for 6.6 million jobs in other sectors, including accounting, wholesaling, shipping and more. For $1 in manufacturing in manufactured sales, that final sale supports $1.37 in other areas of the economy, larger than any other economic multiplier.
Recent headlines highlight General Electric Co., Apple Inc. and other companies reporting that manufacturing is back in the U.S. They are employing better, faster and more economic processes than global competition, leading to increased productivity.
It is widely reported that the labor transportation and energy costs in China have made offshore manufacturing more expensive. The Hackett Group reports that the gap between manufacturing in the U.S. and China has shrunk by nearly 50 percent in the last few years and likely will be less than 13 percent in 2013.
With our ability to be nimble and creative, U.S. manufacturing is becoming more profitable. We are focusing on better design, better performance, safety and a superior product. Most importantly, we are offering a superior life cycle of a product — better than you can get anywhere else in the world.
With rising costs in China, the movement now is to eliminate sweatshops, push out the foreign competition and develop superior and lasting products. With that, the U.S. promises to continue its movement to keep manufacturing and jobs plentiful here at home. ●
Matthew P. Figgie is chairman of Clark-Reliance, a global, multi-divisional manufacturing company with sales in over 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation, a member of the University Hospitals Board of Directors, corporate co-chairman for the 2013 Five Star Sensation and chairman of the National Kidney Walk.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies. He is also the chairman of the National Kidney Foundation Golf Outing.
Consider this business scenario: You’ve landed a big account for your company by converting a highly prized prospect into a valuable client. The new client has hired you to handle a specific scope of work and is counting on your team’s ability to deliver work that goes above and beyond.
While nothing is more important than delivering great customer service to satisfy the client, you may not realize that you’re probably overlooking unrealized opportunities to forge a stronger relationship with your customer.
In today’s business landscape, most large companies offer an array of products and services. More often than not, however, your clients use you for a specific service or skill set. And unfortunately, in this scenario, most companies focus solely on the task at hand — delivering what they’ve been contracted to deliver — failing to take ample time to think about the bond they’re creating with the client and what could be next.
In more simple terms, it is one thing to provide service that keeps a customer; it is another to keep that customer and expand the relationship to become a trusted partner.
Provide value in a deliberate way
The good news is that this is an easy fix. Establish a content marketing program that allows you to distribute thought leadership to your clients.
A content marketing program will help you provide value that other service providers may not, and when clients see you as an informational resource and partner, it will be easier to expand the relationship.
Take this example into consideration: You are an insurance provider and your main product is life insurance, therefore most of the communication you have with your clients surrounds that topic.
With a comprehensive content marketing program in place, however, you can educate your clients on the recent trends in the insurance industry and how that affects the individual. At the same time, you can give them an overview of your company’s wellness program and let them know that if they joined, they could reduce their monthly premiums.
As you can see, you’re not just providing your client with the original service, you’re also providing them with both your thought leadership — aka value — and additional offerings.
Personal connections payoff
Aside from providing value to the client with the content you distribute, a strong content marketing program allows you to showcase your brand’s personality. Clients will be able to connect with your brand on a more personal level.
Providing continually updated content through the right channels to the right clients enhances your day-to-day communications. Clients start seeing you as thought leaders and partners instead of just service providers.
It will help you expand relationships and, as a result, generate new business through more products and services.
Show them more than just what they see on the surface — show them how active you are in the community, or how much fun you had during a recent company outing. If may sound trivial, but your clients do similar things, and seeing you connect with the community and/or employees will help forge a more personal connection. You never know; you and your client may support the same charity, organization or team.
Open communication also will help strengthen relationships to the point where you can capture a premium price and eliminate price-jumping clients. Clients will pay more for a valuable relationship than simply look to get the lowest price elsewhere. ●
David Fazekas is vice president of marketing services for SBN Interactive. Reach him at email@example.com or (440) 250-7056.
You would think someone like Douglas Merrill would be a heavy multitasker, with multiple devices in hand, fielding several conversations — both real and virtual — simultaneously.
But you would be wrong.
Merrill, who was the CIO at Google until 2008, doesn’t like to multitask. He says that when you do it, you aren’t using your brain’s full capacity and aren’t as effective. He recommends focusing on one thing at a time.
Billionaire Mark Cuban has his own time management strategy. Cuban, owner of the NBA’s Dallas Mavericks, says you should completely avoid meetings unless you are closing a deal. Otherwise, he says, they are a waste of time.
Both of these proven leaders have learned that how you manage your time is paramount to your effectiveness.
As a CEO, you are swamped every day with calls and emails from people wanting a piece of your time. Some are internal, some are charity requests, some are from friends or family members and others are from service providers.
To help wade through this sea of information, it’s important to have a system in place to help you free up time to think about your business and the things that matter most in life. These open times are what author Richard Swenson refers to as “margin.” They are the spaces between ourselves and our limits that are reserved for emergencies.
But for many business leaders, there are no spaces left.
The way out of this trap is to set clear goals and values for yourself and your organization. Once you do that, you will have a filter through which to evaluate everything. Everything will have an immediate yes or no answer, eliminating the “let me think about it” category completely.
The key is to establish what your goals are first and then prioritize what is important. With your priorities straight, you will find more time to put toward important things on your goals list, but don’t forget to leave time on your daily schedule. There is no way to foresee all emergencies, so by leaving yourself some margin, when something unexpected happens, you already have time built in to deal with it.
Once you have margin built into your life, you have to have the discipline to stick to it. There will always be the temptation to take every meeting or answer every email. But if you use your goals and priorities as a filter, those requests are easily either accepted or declined based on where they fall on your priority list.
If you want a life where you can experience more peace and joy and less anxiety, start looking at your priorities and establish some margin in your daily schedule. ●
Deny, deny, deny; fall, tuck and roll; or put your head in the sand?
The quick answer to this headline is none of the above. A leader, by definition, must do exactly that — lead, which means being in front of a variety of audiences, including employees, investors and customers. Not everyone is going to be a gung-ho supporter. Sooner or later you’ll encounter a naysayer who either has a point to prove or is on a mission to make you and your company look bad.
Many of these verbal confrontations come out of nowhere and when least expected. As the representative of your organization, it is your responsibility to manage these situations and recognize that sometimes a “win” can simply minimize the damage.
When under siege, it’s human instinct to fight, flee or freeze. Typically these behavioral responses aren’t particularly productive in a war of words. Engaging in verbal fisticuffs could simply escalate the encounter, giving more credence to the matter than deserved.
If you flee by ignoring the negative assertions, you’ll immediately be presumed guilty as charged. It’s hard to make your side of the story known if you put your head in the sand.
By freezing, you’ll appear intellectually impotent. Worse yet, pooh-poohing a question will only fuel the aggressor’s determination to disrupt the proceedings. You could use a SWAT-type police and military technique to elude a confronter by falling, tucking and rolling to safety, but that usually only works on the silver screen.
Perhaps the best method to manage unwelcome adversaries is to be prepared prior to taking center stage. This applies to live audiences or a virtual gathering when you’re speaking to multiple participants, which is common practice for public company CEOs during quarterly analyst conference calls.
Most gatherings of this nature include a Q&A segment where the tables are turned on the speaker who must be prepared to respond to inquiries both positive and negative.
Before any such meeting, it is critical to contemplate and rehearse how you would respond to thorny or adverse statements or questions.
A good practice is to put the possible questions in writing and then craft your responses, hoping, of course, that they won’t be needed. This is no different from what the President of the United States or the head of any city council does prior to a press conference or presentation. The advantage of this exercise is that it tends to sharpen your thinking and causes you to explore issues from the other perspective.
In some cases you’ll find yourself in an awkward or difficult situation where there is no suitable yes or no answer, or when the subject of the interrogatory is so specific it is applicable to only a very few.
The one-off question is easiest to handle by stating that you or your representative will answer the question following the session rather than squander the remaining time on something that does not interest or affect the majority.
The more difficult question is one that will take further investigation and deliberation, in which case the best course of action is to say exactly that. Answer by asserting that rather than giving a less-than-thoughtful response to a question that deserves more research, you or your vicar will get back with the appropriate response in short order. This helps to protect you from shooting from the hip only to later regret something that can come back to haunt you.
Effective speakers and leaders have learned that the best way to counter antagonism is through diplomacy. It’s much more difficult for the antagonist to continue to fight with a polite, unwilling opponent.
Finally, when being challenged, never personalize your response against your questioner; always control your temper; and don’t linger on a negative. Keep the proceedings moving forward and at the conclusion keep your promise to follow up with an answer. This will build your credibility and allow you to do what you do best, lead. ●
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at firstname.lastname@example.org.
My 7-year-old son Cole recently gave me a Rainbow Loom bracelet, which is made of linked rubber bands. It is today’s school-age children’s craze, and Novi, Michigan-based Choon’s Design LLC is churning out the kits at a record pace.
With more than 1 million units sold in the last 24 months, Rainbow Loom is the brainchild of Choon Ng, a former Nissan crash safety engineer who invented it while working on a craft project for his daughters.
And Rainbow Loom, it turns out, isn’t its original name. When it was created, it was called Twistz Bandz.
Timing is everything, and Twistz Bandz may have sounded a bit too much like Silly Bandz — the last “wrist” craze that swept the nation. Between November 2008 and early 2011, every school-age child in sight was wearing layer upon layer of Silly Bandz on their wrists. It was as hot a product as anything since Beanie Babies.
Twistz Bandz’s arrival, it seems, happened just as Silly Bandz ran into what every hot new product eventually faces: competition. Look-a-likes with similar-sounding names began flooding the market. They were cheaper, and you could buy them more readily at more retail locations. The core brand quickly diluted. So Ng did what any smart businessperson would: He changed the dynamics of the situation.
Thus, Rainbow Loom was born.
Enter social media
Within a few months, the product — which allows its young owners to custom-create bracelets — was gaining attention. Much of this was due to a full-tilt social media blitz, including videos on YouTube and an engaging Facebook page, where users could share their designs.
More recently, Ng has become vigilant in protecting his patent and U.S. trademark — battling all wannabe competitors from launching similar-sounding products and flooding the market to dilute his own brand.
His success — or failure — is yet-to-be determined. But his efforts will prove fruitless if he’s not already looking ahead to the next product. This is the dirty little secret to any hot toy craze and the core dilemma every business leaders faces: How do you remain relevant as consumers’ wants, needs and desires ebb and flow — sometimes as swiftly as the wind changes direction.
Get beyond being a fad
Success in business relies upon building a sustainable operation that will outlast any cyclical “must have” product explosion.
There needs to be the creation of an idea continuum — an innovation factory, if you will. Innovative leaders must review, measure and adapt a company’s products, services and solutions to the changing whims of the marketplace. You need to talk to customers, vendors and prospects. And you need to regularly take the pulse of the market.
If you haven’t taken at least some of the gains from today’s success and invested it into research and development for tomorrow, you’re already losing ground. Today is today, and just like the disclaimers for financial investing warn — past performance does not indicate future results.
In the end, the only thing that matters is this: Is your next big thing built to last? Or, like every other craze that’s every hit the market, will your opportunities to remain relevant long into the future fade away after the competition creeps in and dilutes your market? ●
Dustin S. Klein is publisher and vice president of operations for Smart Business. Reach him at email@example.com or (440) 250-7026.
Company executives are always seeking ways to grow their businesses and increase profitability. Sometimes, brand-new products and services are needed to drive growth. Looking at improving existing products or services, however, is often the best approach.
Redesigning them, even with a minor change in materials, process or labor, can lower costs and improve quality, which can drive additional growth. It is desirable and often possible to find a win-win of enhanced product quality and higher profitability.
Cost reduction is a major goal
Product cost reduction by redesign means that a manufacturer changes one or more aspects of the product without changing its functionality — in a way that reduces production cost and hopefully offers other benefits. Most manufacturers should have an ongoing, formal cost reduction process in place, but they also need to be flexible to address new ideas as they arise.
For example, Adidas is currently redesigning a shoe to produce 50 percent less waste, reduce the number of parts by 50 percent and make greater use of recycled materials. The company’s level of technical innovation is considered exemplary, and the rest of us can learn a lot from Adidas’ experiences.
Companies such as Clark-Reliance are also striving to innovate, reduce costs and redesign products to lower costs and improve quality. The first steps are to infuse design improvement thinking into your company and build a product design culture that involves the appropriate employees from across the organization.
Neglecting to act can hurt
Often overlooked is the importance of understanding the costs of doing nothing, which can result in being priced out of the market, obsolescence and not being able to meet customer specifications.
Ideas should always be encouraged. We recommend making the process as visual as possible by including preliminary sketches and eventually a 3-D drawing. The hope is that even people outside the core team will have ideas to contribute.
If employees feel they are free to act on their ideas, you will cultivate an innovative, continuous-improvement culture in which change is not feared or delayed, but greeted with enthusiasm and optimism.
While exciting, redesign can be taxing in terms of time and resources to fully evaluate the options and make change happen. Before you start a redesign, be sure you have the resources, talent and commitment to see the process through to resolution.
We have identified four specific triggers for pursuing product redesign:
1. The cost of the product’s raw materials has increased significantly, so the product is losing some or all of its probability.
2. The competition has made improvements in technology or product performance.
3. There is so much competition that, if you are not continuously redesigning, you will fall behind.
4. Your market niche or market segment has changed.
It is a good idea to routinely review product offerings and look at the cost of material, labor and overhead. We pick a couple of products every quarter and keep looking at what we can do better or differently. Make it a common practice to look for cost-saving ideas through product redesign. ●
Matthew P. Figgie is chairman of Clark-Reliance, a global, multi-divisional manufacturing company with sales in over 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation, a member of the University Hospitals Board of Directors, corporate co-chairman for the 2013 Five Star Sensation, and chairman of the National Kidney Walk.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies. He is also the chairman of the National Kidney Foundation Golf Outing.
The greatest baseball game I ever saw was Game 7 of the 1991 World Series. The Minnesota Twins defeated the Atlanta Braves 1-0 in a 10-inning nail bitter, adding an exclamation point to what many consider the best World Series ever played.
In that deciding game, Twins’ ace Jack Morris gave one of the gutsiest pitching performances in baseball history — scattering 7 hits over 10 scoreless innings while throwing a staggering 126 pitches.
Morris, who in 1994 spent a short stint with the Cleveland Indians, spent nearly 3 1/2 hours on one of the world’s grandest stages and barely broke a sweat. From first pitch to last, he relentlessly attacked Atlanta’s hitters. Whenever a batter reached base, he dug in his heels and adjusted his approach.
One of the things I love most about baseball is the strategy that unfolds during a game. It’s fascinating to watch as the players make adjustments throughout the game as the situations change.
Morris’ performance, as well as the entire 1991 World Series, demonstrates a close correlation between effective adjustments and victory. In the business world, this same ability to swiftly adapt to marketplace fluctuations often means the difference between success and failure. Newton’s Third Law of Motion offers one reason why: “For every action there is an equal and opposite reaction.”
And though Newton lived long before the Grand Old Game arose, he had the right idea: In business, like in baseball, those who react best win. Adjustments, however, aren’t made in a vacuum. Success depends on two equally important pieces — a leader and a team. The leader has four responsibilities: Develop the game plan; lay out a vision for success; achieve buy-in by inspiring others to step up and follow; and execute on the plan. In baseball, this role falls to the pitcher. In business, that often means the CEO or another senior executive.
The team also must effectively play defense behind the pitcher. They need to collectively grind out base hits on offense and score a few runs — at least one more than the other guys. Victory represents having the ever-so-slightest edge on your opponent. It isn’t necessary to engineer a massacre to secure the W.
As the innings pass, the plan requires continuous adjustment. The leader’s tactics need to be tweaked so they better address what’s happening at any given moment.
Trust is just as important. A leader must trust the team to do its job, especially when that job looks more like a curveball than a straight fastball. And in return, the team must trust its leader to make the right adjustments at the right time.
But just like Morris grinding it out inning-after-inning, batter-after-batter, if you want to make successful adjustment in business, you have to know your end goal. And then, make sure your focus is clear and accept nothing less than success. By doing so, you can rally your team to rise to the occasion and make adjustments.
Then, maybe, just maybe, your organization will end up winning its own version of a World Series ring. ●
Dustin S. Klein is publisher and vice president of operations of Smart Business Network, publishers of Smart Business magazine. Reach him at firstname.lastname@example.org (440) 250-7026.
Thirty years ago, motivated by a desire to be healthier, I quit smoking. That change had an unanticipated outcome that altered the course of my life: I learned that I had the ability to break a habit and replace it with a new one.
That might sound simple, but for me it was transformative. It extended far beyond a physical act and changed the way I thought about not only myself, but also the world around me.
I started by replacing smoking with new habits — “positive addictions.” If I wanted a cigarette, I would brush my teeth instead, or run up and down a flight of stairs. Eventually, I took up running. In a sense, I was running from a former self to a new self. I came to see myself as someone who could change, no matter how unlikely that change had once seemed.
While we often discuss shifting paradigms in work, we often forget about the need for shifting our individual paradigms. We must actively reshape the mental models we have that tell us what is and isn’t possible.
These models so often condition failure. Deep ruts form in our thinking that lead us to do things as we’ve always done them. Creating new habits helps to steer us into new territory.
When we think about harmful habits, or habits that are limiting our growth, we might think of things like smoking, overeating or disorganization. But there are countless others that can be holding us back.
Out with the old, in with the new
Here are steps for overcoming an unwanted habit and replacing it with a beneficial one.
1. Identify the triggers
All of our habits have triggers, the hidden motivations that make us engage in the habit. In my case, I smoked when I was stressed, upset or tired. I believed that smoking helped me feel better.
2. Recognize the tradeoffs
I was “trading” stress for a cigarette, or so I thought. Of course smoking didn’t solve anything — it didn’t get at the root of my stress, just momentarily alleviated it. Once you know what you’re trading, ask yourself — is it worth it?
3. Define the possible
In order to quit smoking, I needed to have a vision of my smoke-free life. Who would I be as a non-smoker? What was the value and benefit to me of being smoke-free? I saw my future self as a healthy, vibrant, energetic person. I seized that image and held on to it when I was tempted to smoke.
4. Identify a new habit to replace
the old one
When I had an urge to smoke I replaced that urge by doing something else to occupy my mind, such as running. Find a new habit that will make you a better person.
5. Strengthen the new habit
To become comfortable with a new habit will take time. It’s unrealistic to think you will unlearn one way of doing things and learn a new way overnight. It takes repeated and renewed effort, but with practice you will become more confident.
6. Reward yourself
We all appreciate recognition of a job well done. In this case though, don’t wait for someone else to congratulate you. Do it yourself. Set goals and then reward yourself when you meet them. ●
Donna Rae Smith is a guest blogger and columnist for Smart Business. She is the founder and CEO of Bright Side Inc.®, a transformational change catalyst company that has partnered with more than 250 of the world’s most influential companies. For more information, visit www.bright-side.com or contact Smith at email@example.com.
Productive, powerful, lasting relationships are built on trust. Customers, clients, donors and other supporters have the right to make other choices. A stakeholder relationship is never an entitlement. Those relationships must be earned and constantly reinforced.
As you survey ways to grow trust, look at your organization’s public relations and try to remember:
- Trust isn’t about “spinning” information.
- Trust isn’t about short-term thinking.
- Trust isn’t about talking one way and acting another.
- Trust isn’t about trying to fool anybody.
Instead, focus on these four ways that organizations can create and sustain trust:
1. Trust begins when actions are consistent with words.
2. Trust is built when there is a higher motive than simply making money — when organizations embrace the idea that serving the needs of others ultimately serves their needs as well.
3. Trust is built when leaders create a culture that stands for something. It really is true that organizations that don’t stand for something will be seen as standing for nothing.
4. Trust is built when trust building is central to an organization’s priorities.
Building trusts starts in the corner office
The active participation of leaders is essential to achieving good public relations that result in trust. Where that leadership engagement exists, there is an opportunity to integrate communication and relationship building as essential ingredients in accomplishing business goals.
How well issues are thought through and subsequently communicated often means the difference between success and failure. That is why public relations, aka trust building, is indeed a leadership issue.
Important issues demand leadership engagement
Think about these critical issues and their potential impact on your business:
- Siting a new facility
- An increase in offshore manufacturing
- Right-sizing the organization
- Merging cultures
- Reinforcing expectations for
- Adding a new person to your management group
- Strategies to reduce costs
- Plans to grow
The list is virtually endless. Each of those issues impacts one or more stakeholder group and requires both clear thinking and good communication.
Leaders must participate in the public relations strategies to assure those are in lockstep with their vision, goals and business conditions.
It’s all about trust
Trust is the ultimate tiebreaker in decision-making. In fact, trust is a competitive distinction to pursue.
Leaders are well advised to treat trust as their most valuable asset. ●
Davis Young is the principal of DY Author & Speaker LLC and is the author of “Trust is the Tiebreaker,” an ebook published by Smart Business Network, currently available on Amazon.com. Contact Young at (440) 248-9550 or Dysolon@aol.com.
The idea of a group purchasing organization, or GPO, has been around for years. A GPO provides cost savings to its member companies by aggregating the purchase of products and services. Between the combined volume and the GPO’s procurement expertise, members realize savings beyond what they could achieve on their own.
There are vertical GPOs whose members are all in the same industry — hospitals, for example. And there are horizontal GPOs whose members are in unrelated industries but have common needs for “indirect” purchases such as office supplies, pharmacy benefits, marketing services, telecommunications and facilities management.
What is new today is a more sophisticated horizontal GPO concept that creates value beyond simply leveraging purchasing power. The modern GPO is not a supplier, consulting firm, software provider or full procurement outsourcer. What it offers is a combination of pre-negotiated agreements across a number of indirect categories, rigorous contract management, continuing education and best-practices sharing among members, and collaboration with suppliers to create value beyond the contract.
A hybrid solution
This new approach has emerged as an attractive hybrid solution for large and mid-size corporations looking for external help to bring their indirect spend under better control. A 2011 study by the research firm Spend Matters found 15 to 20 percent of the Fortune 1000 were using a buying consortium. Those numbers are almost certainly higher today.
Analysts estimate that indirect spend accounts for 30 to 60 percent of a company’s total spend, depending on the industry. While corporate procurement departments have generally been quite successful in optimizing direct spend, significant savings opportunities are still to be found in the indirect spend area.
No wonder that a 2012 study by the Aberdeen Group found that 70 percent of procurement executives identified indirect spend as their top target area for reducing costs.
A two-fold challenge
Corporations face two challenges in pursuing this opportunity. First, in most organizations, large swaths of indirect spend are outside of procurement’s control, and the owners of these budgets have been reluctant to allow procurement “inside the tent.”
Second, indirect spend can span more than 100 different categories — most procurement departments lack the tools, know-how and staff to manage such a wide scope of work.
Partnering with a GPO addresses both challenges. Through the GPO, procurement gains access to an array of relevant, pre-negotiated agreements that provide the basis for meaningful dialogue with human resources, IT and other functional groups who own these budgets.
Then in outsourcing responsibility to the GPO for a number of categories, procurement gains access to the GPO’s contract management and category expertise and also frees up internal resources to focus on more strategic initiatives.
GPOs represent a lower-cost, lower-risk approach compared with other external procurement solutions such as total outsourcing or engaging a management consultant. Companies retain their data and direct relationships with their internal customers and suppliers while saving time and resources associated with sourcing and tactical supplier management. By accessing pre-negotiated agreements, companies realize savings almost immediately with the promise of more to come. ●
David Clevenger is the vice president of Corporate United, the nation’s largest horizontal group purchasing organization. Based in Westlake, Corporate United enables more than 200 member companies to manage their indirect spend categories for more than 30 leveraged agreements. For more information, visit www.corporateunited.com. Corporate United hosts a procurement and supply chain conference in Cleveland on Oct. 23 that is free to industry professionals. See the website for more information.