Speaker 1: what are you guys at Hackett from your recent studies seeing in the market as it pertains to targets around procurements core value proposition for cost reduction? That's the first part. Second is going into what Darlene was saying, she's getting hounded on every day is also cost avoidance

Speaker 2: targets. Yeah. Yeah. And I think, you know, Darlene basically hit the nail on the head when she mentioned finance is now paying a lot more attention to cost avoidance. You know, cost avoidance is, you know, we've all been in this space for a very long time and we always know how difficult it is to get people to pay attention to cost avoidance compared to cost reduction. Finance wants to talk about cost reduction. They don't want to talk about cost avoidance. That has changed. And just to give you a data point to confirm what, you know, Darlene said, you know, we typically see kind of if you look at the overall savings components of what procurement drives, you know, cost reduction plus cost avoidance, typically cost avoidance makes up 20% of that overall number, maybe 25%. We have historically in times of supply demand constraints have seen procurement leaning into the cost avoidance component and that number kicking up. Nothing like what we're seeing right now. It in the last two years, it has jumped from 20% to 40% of that overall value proposition. What does that mean? Well, it means companies are leaning into it a lot more and expecting it and really looking at it as a component of procurement's value proposition when faced with, you know, these, you know, inflationary pressures that we're all seeing. So people get it now. But it also means the cost savings numbers or the cost reduction numbers, the hard savings are getting harder to achieve, right? So let me just give you some additional data points, right? When we, you know, kind of earlier in the year, we asked companies about what was going to happen to your cost reduction targets, those hard dollar savings. It did tend to differ between manufacturing and service-based organizations. We had, there was a lot of, I would say on the manufacturing-based organizations, there was a lot of uncertainty, right? And again, this was kind of first quarter of this year, so a few months ago. And over half said, well, it's a little too early to see if we're going to be able to hit our original goals around cost reduction. Whereas about 26% said, nope, they're going to get ratcheted down, there's no way we're going to hit them. And on the service-based side, it was only about 31% of companies that said, well, we're not sure. Most said, so almost 60% said, nope, we're not going to be able to hit our targets. Now, if you think about kind of the amount that those numbers have gotten impacted, they're pretty substantial, right? I think on average, if you look at the, and again, going back to kind of taking a manufacturing-based versus service-based organization, look at this. So those that are more manufacturing-based, about 60% of companies said, we are ratcheting down our cost reduction targets. And on average, the ratcheting them down 2%, which is pretty substantial. Surprisingly though, there were a small group of manufacturing-based organizations, about 10%. That actually said their targets are increasing. Now, my perspective on that is these are probably organizations that were less mature, had opportunities to develop more capabilities. And you are seeing that in the market, right? You have seen less mature procurement organizations actually make investments in the sourcing and category-managed areas to drive out those costs, right? To try to protect against the profits against these inflationary perspectives. But on average, again, about 50, 60% of organizations were reducing their targets on average, ratcheting those down 2%. On the service side, kind of a similar story, about 60% were ratcheting down their cost reduction targets by about 3%. So, it's tough out there in terms of hitting those cost reduction targets. But what we always say at Hackett is, what are you doing to reposition the value proposition of the procurement organization right now? And frankly, procurement does have an opportunity to get people to pay attention to that other component of cost avoidance, which they're always focused on, but often don't get credit. And it'll be interesting to see, fast forward three years from now, have we been successful at kind of confirming cost avoidance as part of procurement's overall value proposition and sustaining that? We talk to a lot of clients right now that are asking us about, hey, how do we better define cost avoidance? Getting into the nitty-gritty around how to define that. What Ronald said was right on when you think about kind of cost modeling as a means of kind of helping to at least mitigate some of these inflationary pressures that suppliers are passing on. Look, we've seen a lot of companies really formalize the process of responding to supplier price increases, right? And educating their sourcing category managers on what do you do when a supplier comes to you and says, I need to increase your price by 10% because our costs are going up. What's the process? Do you have a formal process in place that you follow, including cost modeling to better understand, is it justified or to the extent that it's justified? And then what are those risk mitigation strategies you can do to try to mitigate some of that if you

Speaker 1: have to absorb those costs increases?