Let’s look at an all-too-familiar situation in procurement teams.

The Chief Procurement Officer (CPO) declares impressive savings of several million pounds. The Chief Financial Officer (CFO), however, remains sceptical. Not because they believe the CPO is exaggerating. But because the savings simply aren’t visible in the profit and loss (P&L) statement.

So, where do these procurement savings disappear to? And how can procurement teams ensure that identified savings actually translate into financial results? Let’s dig a bit deeper and find out.

‍

Procurement Savings: Where do they go?

Studies suggest that savings identified through strategic sourcing activities shrink by 30 to 40% before they are fully realised. Several factors contribute to this erosion:

‍

1. Lack of Compliance, Especially in Indirect Spend

Indirect procurement categories, such as marketing, IT, and professional services, often lack strict compliance. Business units may ignore preferred suppliers or negotiated contracts, opting instead for convenience or familiarity.

This inevitably leads to price creep and missed savings opportunities. The estimated spend attributed to a global contract that delivers savings never actually materialises.

‍

2. Poorly Defined Requirements

Inadequate scoping of requirements often leads to hidden cost escalations. If specifications are unclear during the sourcing phase, additional costs emerge later—whether in the form of unnecessary customisation, premium pricing for urgent changes, or increased service levels that were not budgeted for.

‍

3. Delays in Implementation

The gap between identifying and realising savings is another major issue. Procurement teams often report savings at contract signature, but the actual cost reductions only hit the business results once implementation has been completed.

This can be weeks, months, or even years after contract signature, with the obvious impact on the overall savings that these significant delays bring. Unexpected roadblocks such as testing or validation requirements, supplier onboarding challenges, or internal resistance to change, can all contribute towards this lag.

‍

4. Global Agreements vs. Local Execution

Global framework agreements promise consistency and cost reduction, but execution at local or regional levels often falters. Reasons include:

• Lack of awareness among local teams that a global agreement exists.

• Poor communication between headquarters and regional offices when it comes to implementation and change management.

• Service level gaps where a global supplier cannot match local providers in specific markets on either cost, quality or scope of service.

‍

5. Invoicing Errors and Pricing Transparency Issues

Even with negotiated discounts and rebates, invoicing inaccuracies can prevent expected savings coming to fruition. Common issues include:

• Incorrect application of incoterms, resulting in unexpected or higher logistics costs than originally accounted for.

• Misalignment between agreed discount levels and actual invoices submitted by the supplier.

• Unclaimed rebates due to lack of robust tracking and reporting mechanisms to guarantee that what is due is actually claimed.

Additionally, pricing transparency remains a challenge. While Global Master Agreements provide a broad framework, actual country-level pricing may differ, leading to inconsistencies in realised savings.

‍

How Can the CPO’s Numbers Gain Credibility with the CFO?

For procurement savings to be trusted, procurement teams need to close the gap between forecasted and realised savings. This requires a more structured and disciplined approach across three key areas:

‍

A Robust Process: From Planning to Execution

Too much emphasis is placed on negotiation while neglecting the planning and implementation phases. A more structured approach includes:

• Early involvement of stakeholders to define realistic cost reduction targets

• Stronger governance to ensure compliance and implementation of the new contract or commercial conditions across all countries, regions and business units.

• Detailed implementation roadmaps to reduce delays, track progress, and to maximise the chances of savings being captured.

Careful management of savings throughout the entire lifecycle, rather than just focusing on sourcing and pre-contract signature negotiations, helps to reduce leakage further downstream.

It also increases visibility and transparency around the numbers being reported vs. the numbers which flow through into financial results.

‍

Adequate Resourcing

Stronger processes require additional resources. Procurement teams often struggle to balance strategic initiatives with operational execution. More hands-on management of savings realisation demands time, effort, and skills that may be stretched thin.

This is where automation and procurement performance management technology become critical.

Technology plays a vital role in bridging the gap between identified and realised savings. Traditional methods, such as spreadsheets, disconnected ERP reports, and manual audits, are inefficient and prone to human error.

To ensure procurement savings are accurately captured, procurement teams must adopt integrated digital solutions that provide real-time insights, automation, and compliance tracking.

Here are the key technological capabilities that can help procurement teams plug the savings black hole:

‍

Technology for Savings Tracking and Project Management

Some examples of the types of technology which can be used to ensure adequate tracking and reporting of procurement performance and savings delivery:

‍

1. Project Management Tools: Keeping Savings Initiatives on Track

Many procurement savings fail to materialise due to delays, poor coordination, or lack of accountability. A digital project management tool helps ensure that savings initiatives progress as planned by:

• Assigning clear responsibilities to category managers, finance teams, and stakeholders, so as all parties are clear who is responsible for what.

• Setting milestones and tracking progress against expected savings realisation dates

• Providing automated alerts for upcoming deadlines, stage gate approvals, and missed targets

• Enabling collaboration in one single, user-friendly platform between procurement, finance, operational teams, and even suppliers, to enable smoother execution

Modern procurement software often integrates with project management platforms, ensuring savings initiatives don’t stall due to inefficiencies in execution.

‍

2. Contract Compliance Monitoring: Ensuring Pricing and Terms Are Applied

Procurement savings often erode due to contract non-compliance. A well-negotiated supplier contract is worthless if business units fail to adhere to agreed pricing, discounts, or terms. Contract Lifecycle Management (CLM) software, especially platforms with a focus on post-signature contract management, can prevent this by:

• Automatically flagging invoice discrepancies where suppliers overcharge against contracted rates

• Enforcing purchase order (PO) compliance, preventing rogue spending outside agreed terms

• Tracking rebate agreements to ensure discounts and rebates are applied correctly

• Monitoring contract expiry and renewals, preventing businesses from defaulting to unfavourable pricing or being sucked in to unwanted auto-renewals.

Contract compliance tracking ensures that savings don’t disappear due to pricing variations or overlooked rebates.

‍

3. Automated Savings Tracking: Real-Time Visibility on Savings Impact

Without real-time tracking, procurement savings often go unmeasured or are reported inaccurately. Automated savings tracking tools solve this by:

• Comparing forecasted vs. realised savings, identifying discrepancies early

• Consolidating data from procurement, finance, and operational teams, eliminating any reporting silos or lack of visibility of what procurement is working on

• Providing CFO-ready dashboards, making it easier to validate savings impact in a language that Finance understands

• Highlighting savings erosion trends, allowing procurement teams to act proactively to understand where their projected savings are failing to materialise

Real-time savings tracking with robust analytics ensures procurement teams can validate and report savings with confidence.

‍

4. Supplier Performance Analytics: Mitigating Risks That Undermine Savings

A supplier’s failure to meet expectations—whether through delays, quality issues, or price fluctuations—can significantly reduce procurement savings. Supplier performance management (SPM) tools help by:

• Tracking supplier KPIs, including delivery times, quality compliance, and service levels

• Identifying cost variances, ensuring that actual spending matches projected costs

• Providing risk assessments, flagging potential supplier disruptions that could impact savings

• Enabling supplier scorecards, helping procurement teams make data-driven sourcing decisions

‍

The Impact: From Manual Reporting to Real-Time Validation

By integrating these technology-driven solutions, procurement teams can move beyond static spreadsheets and retrospective audits. Instead, they gain real-time savings validation, ensuring that every negotiated cost reduction translates into measurable financial impact.

With automated tracking, compliance monitoring, and supplier analytics, the CFO can finally see those procurement savings materialise on the P&L—bridging the trust gap between procurement and finance.

‍

Conclusion

The "Procurement Savings Black Hole" is a real challenge, but it is definitely not insurmountable.

The key to ensuring savings flow through to the P&L lies in:

• Process discipline

• Effective stakeholder and supplier management

• Adequate resourcing of proucurement teams

• Adoption of easy-to-use technology

Procurement teams that invest in robust tracking mechanisms, stakeholder engagement, and execution oversight will gain greater credibility and secure lasting cost reductions.

Would you like to explore procurement performance management and how Provalido can help you increase transparency and visibility of procurement cost savings?

Our solution tracks areas 1 and 3 listed above, and can also be integrated with contract management and SRM / SPM tools to give the complete picture.

Contact us for a no obligation demo and tour of the platform.

FAQs

1. Why do procurement savings not show up on the P&L?

Savings can erode due to compliance failures, delays in execution, invoicing errors, and differences between global agreements and local implementation.

2. How can procurement teams improve savings realisation?

By focusing on end-to-end savings tracking, ensuring compliance, post-contract signature lifecycle management, strengthening governance, and using technology to automate monitoring.

3. What role does technology play in procurement savings?

Technology enables real-time savings validation, contract compliance monitoring, and supplier performance tracking, reducing the risk of savings leakage.

4. How can procurement gain credibility with the CFO?

By improving process transparency, ensuring accurate reporting, and using technology to provide real-time savings visibility.

‍