What is Strategic Cost - Onarach

What is Strategic Cost

Having spent the first half (so far) of my professional career on the supply side of the relationship, selling or at least pushing strategic investment in Software solutions, and the other half (so far) buying them, I have noticed one thing that is constant, and that is:

> 80% of Client spend is with 20% of their supply chain.

This is probably not a mind-blowing revelation to anyone, but what is important is how we treat it. Depending on what industry you work in pretty much defines how you as an industry treat your spend and supply chain.

An example of this is that Government have overheads based on the perception of fairness that seem extreme, even to the suppliers, as they all have to go through the same loops. This can have a negative effect on small suppliers as the cost (resources etc) is too high a bar for entry in some cases. The larger suppliers know this, and not only play the game, but decide on the rules too.

Banking and finance have heavy governance based on their exposure to risks related to how they have treated their customers: notably the financial markets crashes, bad investment decisions. Due to this you now need to be a triple A rated company to engage. I am pretty sure the supply chain wasn’t the issue, but when you look for risk, you find it everywhere.

I can go on, you get the picture. The thing you do need to know however, is the 20% where you spend your cash. Suppliers understand absolutely how you do that … what it takes for sign off, business cases, risk, what your sports preferences are, who you support … they map your business based on potential wallet share (wallet share is probably the wrong word but it is considered client friendly if it gets out). Basically, how much of your wallet they can transfer to theirs.

This may sound a little extreme, and yes suppliers do need to provide solutions which you will pay for, however what I am talking about is balanced and fair equity in the supplier-buyer relationship, especially when the 20% are geared up to be more equal to the suppliers than their clients.

However, I digress, the first thing I want to do is clear up what we mean by strategic cost saving.

It is the 20% of your supply chain where you spend 80% of your external spend.