Almost all optimization plans start at the top of the list. And they work. The first time.
In this article I explain why the most expensive 20% is usually also the most closely monitored, and where the real path is: in medium-sized items that never justify a management meeting on their own.
Almost every executive knows the 80/20 rule.
And almost all of them apply it to the same list: spend sorted from highest to lowest.
It makes sense that they do. It is the list the system provides, the one that reaches the committee, the only one that can be read without having to explain it.
The problem is not the rule. It is where people look.
After many optimisation projects, the pattern repeats itself: the top of the list responds well the first time.
And less and less after that.
Where everyone looks
Energy. External personnel. Logistics. Insurance. Raw materials.
These are the categories where any optimisation plan starts, and the logic is impeccable: that is where the money is.
The problem is that everyone else is there too. These categories have an owner, a committee, and a history of tenders. They are reviewed every year because their size forces them to be reviewed.
The most expensive 20% also ends up being the most closely monitored 20%.
And what is reviewed every year rarely has much room left for improvement.
So where is the 20% that matters?
It is spread out. And that is why it does not appear in any report.
Think about that fleet that was sized when the company had a different commercial structure and that today is renewed by inertia, using criteria from six years ago.
Or that software that the entire workforce pays for and only 10% uses. Or telecommunications.
Or that cost category that has increased with the annual price review, year after year, without anyone ever comparing the outcome with what the market offers today.
None of them justifies a management meeting on its own.
All of them together explain a part of the margin that is later sought elsewhere.
Why amount is misleading
The usual criterion for prioritisation is the size of the spend category.
The useful criterion is another one: the opportunity, the distance between what is paid and what should be paid.
A two-million-pound category that has been well negotiated has less opportunity than a two-hundred-thousand-pound category that nobody has touched in six years.
Amount measures weight. Opportunity measures potential.
And they almost never coincide.
How do you identify it?
Not by sorting spend by euros. By asking three questions of all spend, not just the large categories:
- When was it last negotiated, and against how many real alternatives?
- Does today's consumption resemble the consumption it was originally sized for?
- Does what is being invoiced match what was signed?
What comes from this is not a list of cuts. It is a map showing where there is opportunity and where there is not.
And the second matters as much as the first: knowing which categories are already in good shape avoids months of internal strain in battles that were already won from the start.
The 80/20 of attention
The rule does not apply only to spend. It also applies to the time of those who make decisions.
Most committees devote 80% of their attention to the 20% of spend that is most visible. Not to the 20% with the greatest opportunity.
And so, year after year, what was already optimised becomes even more refined. And what was never reviewed simply gets inherited.
The 80/20 rule remains valid. What usually fails is the list it is applied to.
If tomorrow you had to point to the 20% of your spend with the greatest opportunity, could you do it with data?
The 20% that determines your profitability is not the 20% that carries the most weight in the profit and loss account.
