Multinationals can achieve significant savings in security procurement

Despite potentials of billion-dollar savings in security procurement optimization, most overseas subsidiaries choose to continue current processes based on outdated requirements. The companies act immature in this way, believes management consulting firm Deutsche Risk. “Often there is local unwillingness to retrieve savings, which can sometimes be for shady reasons,” says the firm’s CEO, Jakob Korslund.

When global companies buy goods and services worth billions every year, this is done based on outdated information and requirements, and in some cases at prices that are much higher than necessary. “The reason is most often to be found, particularly, in a practice of the individual subsidiary procurement department itself not updating the requirements and being allowed to decide which service companies are to provide services and goods”, says Jakob Korslund to Consultancy.org.

Security procurement

The consulting firm he leads, Deutsche Risk, assists medium to large companies to think strategically in relation to security procurement. Based on its track record in the field, Deutsche Risk asserts that the companies who do not manage to exploit their large purchasing power to ensure correct requirements are up-to-date and that fair market prices are achieved, miss out on huge opportunities for lower gross expenditures.

“These companies with overseas subsidiaries are, after all, some of the heaviest foreign direct investors in the local communities where they operate, but a rough diamond when we talk about modern security purchases. Most of these companies can become more advanced. This means that they achieve surprisingly large savings when they start on these projects,” highlights Korslund.

In particular, he points out one reason why the companies are not more effective: “Even though you have some global procurement policies and procedures, one can still say: I use company A because I like it. This means that as a consultant you have a completely different kind of burden of proof and persuasion task when presenting a fact-based decision proposal.”

Deutsche Risk has, among other things, ensured a large manufacturing company in Asia a saving of 50% on the purchase of security services, while between 10% and 17% have been harvested in savings on equipment purchase, maintenance and renovations, the company informs.

Shady incentives

The problem with reaping such financial benefits is that local procurement departments and the executive management of subsidiaries are most often not aware that things can actually be made more effective. “I'm not sure the global headquarters and their shareholders know this – there is no one telling them. And in the work we do globally, we come across examples where there are incentives for a group, or perhaps a few individuals, who operate procurement of security this way, enabling us to better understand why they do not want to change a given practice,” Korslund says without much desire to elaborate.

Directly asked, he wishes not to echo words such as lubrication and bribery, but he notes that often there are incentives present that are not fully aligned to owners’ interests of financial optimization of the individual company.

Related: Security consultancy Deutsche Risk makes moves in strategic Asian expansion.