Delivering Savings via Cross-Functional Collaboration

Price based negotiations are rarely sustainable

The traditional image of the purchaser is of a hard negotiator who drives the price paid down to the minimum. All very well if the buyer holds all of the power in a competitive market and the supplier has plenty of margin to give away or a lot of scope to make efficiencies. In practice this is usually not the case and, over time, the supplier will often claw back margin by cutting corners (resulting in lower quality), over-pricing products where he does have control and/or claiming for every minor change which comes their way.

Cross-functional teams cut the cost not the price

In the Cleeton project it was the combined power of the whole supply chain which resulted in the delivered benefits. Importantly, all of the parties actually increased their profit margins! Fine tuning design conditions, moving to a 3 legged platform rather than the traditional 4, working with the fabricator around design holds all contributed. Likewise, whilst competition played a major role in the outsourcing deal, even the supplier felt it was a good one on the basis of cross-functional clarity. Similarly for the computer manufacturer.

It requires dedicated effort to make it work

Doing this work as part of the "day job" rarely works or, if it does, it takes a long time. If significant benefits are to be delivered quickly, it requires project based team-work.

BP Cleeton Compression

Although dating back to 1995, this project was a milestone in collaboration - not just cross-functional, but intercompany. When it arrived at the contractors the budget was £58m - outturn £33m!
See related publications

Telecoms IT Services Outsourcing and Hardware

This outsourcing deal in the telecomms sector saved 20% on a spend of €100m. The hardware initiative delivered 30% on a spend of $60m. Both included multi-national, largely dedicated cross-functional teams.

Computer Manufacturing

Although overall savings were relatively lower (10% on a spend of €450m), this cross-functional team consisted of individuals from sales, through engineering and production, all the way through to after-sales.