Rapid Spend Reduction
Updated: Oct 20, 2019
Rapid Spend Reduction (RSR) has become a buzz word for many consulting companies to their clients when comes cost reduction and savings.
Does RSR really provides value to your continuous improvement initiatives? How can we make the RSR more effective and efficient?
Many of RSR starting with reviewing spend categories and look for those can easily reduce cost by re-negotiating contracts, extend payment terms, change suppliers and nominate alternate suppliers, change demand and supply processes, etc.. These actions do give immediate results to reduce cost, however, there may be some long term negative impact to company reputation and supplier loyalty.
One of the CEOs I worked with a few years ago, his first RSR action is to ask his staff tell all suppliers to extend payment terms from NET 30 to NET 180, also contract purchase price has to reduce minimum 10% otherwise company will look for different suppliers. The reaction, if supplier sees this company really a key and important client, they may decide to go with request of course not going to be happy. If not, supplier will tell you to back off and walk away. We may receive quick and positive cash flow immediately, but this change really impact how suppliers look at the company and loyalty from suppliers. Do you think suppliers will continue to support your operations based to the extend or only do as what I am committed to do?
RSR needs to carefully managed and planned before taking into action as it can be a double bladed sword which can help you also hurt your operations.