How Do You Show Value? - VI

At the end of the last posting I mentioned the need to make budget adjustments to preserve negotiated results and ensure that they make it to the bottom line. This is an important topic, so let’s spend some time on it. 

All too often, after a long and productive sourcing initiative, the team celebrates success when the new contract is finalized. The best efforts don’t end there. They continue with a well-developed implementation plan. And, that plan includes–among a long list of actions–involving the finance and accounting folks in ensuring that negotiated benefits make it to the bottom line. 

Without a proactive approach on budget adjustments, this is what typically happens: the new contract creates favorable variances at the cost center level, and the individual cost center manager has the freedom to spend that favorable variance on other things. As a result, no one can “find” the benefits from the new contract on the bottom line. This is especially true with indirect materials and services. 

When I present at conferences and ISM dinner meetings, I sometimes ask whether companies regularly adjust budgets for new contracts. Most do not. If your company is in that category, you can improve your value-add, and your credibility, by starting now. Involve your finance and accounting partners–they have as much at stake as you do.