Telecom operators are facing strong financial pressures due to shrinking commercial margins and rising operating costs and investment demands.
As in other industries, telecom operators have put in place procurement departments to obtain significant savings through negotiation and panel rationalization. External spend – opex and capex – is a major component of the cost base, accounting for up to 40% of revenues, and can often be leveraged during difficult times. However, in the face of more diversified and complex purchasing portfolios, more concentrated supplier markets and faster technological shifts, traditional sourcing optimization initiatives seem to be reaching their limit. Today, very few operators have successfully boosted purchasing performance through more sophisticated approaches on a large scale.
Reaching the full potential of sourcing optimization requires going beyond traditional negotiations, obvious panel consolidations, and basic supplier management. Successful companies develop cross-functional collaboration between buyers and various business stakeholders, and their procurement departments are involved in the early stages of specifications design to enable total cost perspective and determine best suppliers’ relationship models. Most importantly, savings generated need to be integrated in the budgeting process to ensure credible impact.
When successfully executed, this proposition can yield up to 400+ basis points in cash flow for telecom operators. Optimized procurement also generates significant side benefits such as improved risk management and identification of faster growth opportunities through enhanced supplier relationships.