Latest / The Operator's Manual with Fexingo: Daily Decisions, Tactical Wins, and Business Execution / How a Single Procurement Change Saved JPMorgan 100 Million
Transcript
- Lucas: So JPMorgan Chase spends about 3.5 billion dollars a year on external vendors — legal firms, consultants, software, janitorial services, everything. And for years, that spend was managed by individual business units, each picking their own suppliers. Luna: That sounds like a recipe for chaos. How many vendors were we talking about? Lucas: Over 1,200 law firms alone. And that's just legal. The bank had thousands of vendors across all categories, with little central oversight. Then around 2017, they started a procurement transformation. The goal wasn't just to cut costs — it was to reduce complexity. Luna: And the result? I remember reading they saved over a hundred million annually. Lucas: Exactly. They consolidated their legal panel from 1,200 firms down to about 400. They renegotiated rate structures — moving from billable hours to fixed fees and alternative arrangements. And they saved over 100 million a year. But here's the thing: the savings weren't from slashing rates. They came from reducing the administrative overhead of managing 1,200 relationships. Luna: So the hidden cost of fragmentation is bigger than people think. What's the ballpark for that overhead? Lucas: One study suggests that companies spend 15 to 20 percent of their total procurement budget just on managing the procurement process itself — vendor onboarding, compliance checks, invoice reconciliation. When you have thousands of vendors, that percentage balloons. JPMorgan essentially cut that management cost by two-thirds. Luna: But doesn't consolidation create risk? You put too many eggs in one basket, and if that firm drops the ball, you're exposed. Lucas: That's a real concern. JPMorgan didn't go down to one firm. They kept 400. They also built a tiered system — preferred providers for high-volume work, specialists for niche needs, and they kept rotating some work to keep firms honest. The key was a data-driven approach: they analyzed spend patterns, quality scores, and risk profiles before deciding which firms to keep. Luna: So they treated it like a portfolio, not just a cost-cutting exercise. Lucas: Exactly. And that portfolio thinking is what most companies miss. They see procurement as a back-office function — pay the bills, keep the lights on. But the best companies treat it as a strategic lever. A few years ago, I spoke with a procurement officer at a mid-sized manufacturer who said their procurement team was seen as the 'accounts payable police.' They had no seat at the strategy table. Luna: That sounds familiar. How did they turn it around? Lucas: They started with a tail-spend analysis. Tail spend is the long tail of small purchases — the 80 percent of vendors that account for only 20 percent of spend. Most companies ignore it because each individual transaction is small. But collectively, it's a huge leak. This manufacturer found they were buying office supplies from 47 different vendors, each with its own invoice process. Luna: Forty-seven? For office supplies? That's insane. Lucas: Right. They consolidated down to three, standardized the catalog, and saved 2 million a year — just from office supplies. And that was just the beginning. They eventually applied the same logic to IT hardware, janitorial services, and even coffee supplies. Luna: Coffee supplies? That's a funny one. But I'll bet the savings add up. Lucas: They do. And it's not just about cost. When you reduce the number of vendors, you also reduce the cognitive load on your employees. They don't have to remember 47 different ordering portals and passwords. It's a quiet productivity gain. Luna: I want to circle back to something you said about the data-driven approach. How do you actually identify which vendors to cut? Is there a formula? Lucas: There's a common framework. You plot your vendors on a matrix: spend volume on one axis, strategic importance on the other. The high-spend, high-importance vendors get deep relationship management. The low-spend, low-importance vendors get consolidated or automated. The tricky quadrant is high-spend, low-importance — those are the ones where you're overpaying for commodity services. That's where the biggest savings often are. Luna: And the low-spend, high-importance ones — like a niche patent attorney — you keep, even if they're small. Lucas: Right. You don't consolidate those. You just manage them more efficiently, maybe with a streamlined contract and automated payments. Luna: This reminds me of something I read about a hospital system that cut supply costs by 15 percent using a similar approach. They realized they were buying the same surgical gloves from six different distributors at six different prices. Lucas: That's a classic example. And hospitals are especially prone to this because each department orders independently. The procurement team at that hospital system created a formulary — a list of approved products — and negotiated volume discounts. It's the same logic JPMorgan used. Luna: So for a mid-size company listening, what's the first step? Should they hire a procurement consultant? Lucas: Start with data. Pull your vendor list from your accounts payable system. Remove duplicates — you'd be surprised how many companies have the same vendor listed under slightly different names. Then look at the distribution of spend. If you see a long tail of vendors with tiny amounts, that's your opportunity. You can often consolidate by approaching the top vendor in that category and asking for a bundled discount. Luna: That's a low-risk move. No need to fire anyone, just negotiate better terms. Lucas: Exactly. And if you're a smaller company that doesn't have procurement leverage, there are procurement co-ops. Groups like OMNIA Partners or E&I Cooperative Services let you pool your spend with other companies to get better rates. That's how a 50-person architecture firm can get Fortune 500 pricing on software and supplies. Luna: I hadn't thought of that. It's like a buyer's union. Lucas: It really is. And the savings can be significant — often 10 to 20 percent on categories like office supplies, shipping, and IT hardware. The barrier to entry is low: usually just a membership fee. Luna: Okay, so we've covered the big wins and the tactical steps. But I wonder: what's the biggest mistake companies make when they try to consolidate vendors? Lucas: They go too fast. They cut vendors without understanding what those vendors actually do. Sometimes a small vendor provides a critical service that's hard to replace. The right approach is to map the vendor to the business process first. Ask: what would break if this vendor disappeared? Luna: That's a good rule of thumb. So slow and data-driven, not slash and burn. Lucas: Exactly. And that's the philosophy behind the best procurement transformations. It's not about cost cutting for its own sake. It's about making your operation simpler, more resilient, and more focused. If you do it right, the savings are just a byproduct. Luna: Speaking of focus, I think that's a good place to wrap up. One practical takeaway? I'd say: start with your tail spend. Lucas: Absolutely. Pull that vendor list, find the long tail, and consolidate. Even if you save just 5 percent, that's pure cash flow. And in this environment — mid-2026, where cost of capital is still elevated — that matters. Luna: Yeah, every percent counts. Alright, that's a wrap for today. Thanks for listening, and we'll see you next time on The Operator's Manual.