Neglecting Cost Management Strategy: The Makings of a Risky Business

The business world is always in a state of change. But recent years – and really, recent months –  have brought more change than usual.

In fact, recent months have brought on an urgency the market hasn’t seen in a while. Inflation is rising each month, the job market is showing signs of softening, and more frequent interest hikes are expected from the Fed. Across the nation everyone is doing their best to avoid a different “r” word: recession.

That increasing speed and consistent change comes with a big scary word for business leaders: risk.

‍Business Implications of this New Market Landscape

To better understand what is coming for today’s business one has only to look at the individual consumer market. Credit card debt is rising as a way to offset the cost of inflation. Job security and a strong job market is coming into question. Layoff stories are beginning to litter the news cycles. And the price of gas is beginning to fall because consumers are curbing their demand.

It would be foolish to not look at this data and consider the business implications that are looming.

History has proven that businesses of every level, from small growth shops to mid-size and event enterprise firms, who fail to quickly to read the market tea leaves get left behind.

As leaders, the time is now to established their plans, or risk vulnerability. Time and time again, we see those who fail to strategically plan see a disproportionately negative impacted when if market winds start blowing on your business even harder.

The bottom line is this: If you’re not spending time developing a cohesive procurement and cost management strategy, you’re creating risk in your business.

The Time for a Comprehensive Approach to Spend and Procurement Strategy is Now

It’s never too early (or too late) get more strategic about your spending and vendor strategy. Here are just four areas to consider and why neglecting them makes them so risky:

It’s a Leadership Mandate

‍Market conditions are uncertain. This has been established. Times of uncertainty are made for leaders with a pulse on today and a vision for the future. It is the leadership mandate to provide clarity when things get chaotic… or could.

The role of leadership is to devise the plan, to delegate teams to prepare and to ultimately react to the looming uncertainty. How does your spending strategy align with the pressures your market is facing today? When was the last time you even thought about it?

Why failing to consider this is risky business: “They” might be right: failing to plan is planning to fail. As a leader, you are your track record, and your track record is your reputation. As the saying goes it takes years to build trust and a stellar reputation… but, you know the rest… Leaders don’t multiply fears, they squelch them. They don’t breed confusion, they lead to common understanding.

Time, Energy, and Focus are Finite‍

There’s only so much time, energy and focus you can give. While it may be true that you are giving more than the average leader, even still, there’s a point where they all become finite.

The truth is that multiple priorities are difficult to align and evenly address. Foundational items like vendor procurement and spend strategy get lost in the shuffle. After all, you’re already working with vendors and the products and services they provide are mission critical. It’s easier to just keep swimming and think about that another day.

But let’s ask the tough questions: What are you giving your time to? Better yet, of the time you spent what was your focus and emotional drive spent on? Are you fully confident that those are the things that are setting you up to face today’s market uncertainty?

‍Why failing to consider this is risky business: It’s easy to get lured into loud urgencies and emotional moments to the detriment of plans and strategies that, quite literally, pay off.

Domain Expertise Takes Critical Time and Focus  ‍

Let’s dive a bit deeper into spend management strategy specifically since that is the driving focus of this post. Vendor management is not only knowing about the few vendors your business uses, it’s about knowing the entire scope of the market. That can be daunting.

Negotiating may be the art of the deal, but having deep domain expertise across multiple spend categories is not a one or two person job. It takes an organization solely focused on this cost management discipline.

Have you considered that many of the service providers you use are massive businesses and have a larger, more sophisticated organization than you? In many cases, these providers are spending a lot more time thinking about how they can extract more revenue out of you, than you are thinking about how to manage and maintain your costs.

‍Why failing to consider this is risky business: You can only get so good on a product when you’re negotiating one contract a year as opposed to seeing the trending analysis of where thousands of contracts are trending… and watching those over the course of multiple years, even decades. The fact is, in most cases, going it alone is not a recipe for success since you’re not negotiating the volume discounts that would make a service provider pay closer attention.

Vendor Sprawl is Real

‍Firms have an exploding number of third-party vendors that provide services and products their people need to do their jobs. Without these products businesses start to become inefficient and growing the business becomes more difficult. This requires the people making these purchases to attempt to become experts in dozens of product categories.

Vendor management is particularly challenging when each product category is getting increasingly complex through new field entrants and new product advancements.

For most procurement teams, keeping up with it all is neither feasible nor fair. Vendor sprawl becomes the natural outcome of a business using more and more outsourced vendors to remain competitive in their industry. But who’s going to procure the vendors when time is being spent elsewhere in the business? How are you actively managing the your monthly inflows and outflows? How does your market data or travel spend stack up against peers? As cash gets tighter, do you have the opportunity to renegotiate for better deals?

‍Why failing to consider this is risky business: Maintaining strong vendor relations and professional vendor management is a business continuity priority area. This embedding of vendor products and services in core operations makes procurement a strategic area. Proceed accordingly.

In times of economic uncertainty...

Risky business may have been cool in the 1980’s. In 2022 it’s anything but.

Concertiv can help your business figure out the steps you need to take to reclaim ownership over your spending and vendor management strategy. Better yet, in a time of uncertainty this strategic partnership can help your business stay efficient and optimized… even as you drive a plan that doesn’t have to be reinvented with every phase of growth. Sounds nice, doesn’t it?

If you’re not spending time now developing a cohesive procurement and cost management strategy, you’re placing unnecessary risk in your business.

Nobody’s got time for any risky business… least of all you.

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Interested in learning more about procurement-as-a-service for your firm?  

Learn how leading firms are partnering with Concertiv to reduce spend, minimize risk, and save time across key spend categories.