Managing that other Funnel

The sales funnel. It’s familiar to all of us, even those who have never worked in sales. The principle is easy to understand. Sales opportunities start at the top of the funnel. Some of the these opportunities fall out as the funnel narrows, until the actual sales drop from the bottom of the funnel. The funnel can also be referred to as a pipeline, but the principle is the same. It’s impossible to imagine a sales function not actively managing their sales pipeline in some way.

Yet what about procurement? There are direct comparisons with sales. The “opportunities” tracked and measured within a sales function are potential benefits to the organisation, usually in the form of increased revenue. These opportunities have a value and they have a likelihood of success that increases the further through the funnel they go. Each opportunity is managed by a person or a team of people, potentially going through a series of review points where approvals are made, and the benefits delivered to the business are forecasted and reported.

In procurement, our “opportunities” take lots of different forms from simple cost reduction, to demand reduction, to other forms of quantifiable value. These opportunities also have an increased likelihood of success as we progress through them. They are also managed by a person or team and go through a series of review points, and the benefits are forecasted and reported.

The parallel is striking, and yet how many procurement functions actively manage their pipeline? If it’s unthinkable for a sales department not to have full control and visibility of their pipeline, why should it be any different for a professional procurement department?

Just as sales teams are increasingly using cloud based solutions to manage their pipeline (62% of all CRM software will be cloud based by 2018), procurement teams should be doing the same. Managing your opportunity pipeline in such a system brings numerous benefits. It provides increased efficiency and visibility to cost reduction projects and also helps to embed a robust process, with the appropriate workflow and approval controls ensuring that opportunities are handled with a common approach, right from idea through to implementation. Ultimately it increases the credibility of the procurement function and the benefits being delivered.

Provalido’s Savings Tracker is designed to do just this. With decades of procurement experience going into the design our solution enables organisations to manage their cost reduction projects through their full lifecycle. It’s easy to use and also flexible so it’s fully compatible with your sourcing process, savings definitions etc.

We’d love to show you more, so for more information, or to arrange a demo, please contact us today.

News: Savings Tracker Version 4.3 Launched!

Version 4.3 of our Savings Tracker has now been launched and once again we have combined ideas from our customers into an enhancement package to make our Tracker even more useful and easy to use.

With now well over 1,000 users across the world, it’s more important than ever that our Tracker is a great fit for all shapes and sizes of organisations and the different savings reporting processes they employ. As with all our upgrades, we have placed huge focus on getting the right balance between functionality, usability and flexibility while retaining all the benefits of a pure one-solution cloud-based infrastructure.

Highlights of the upgrade include the ability to manually or automatically identify monthly savings as realised or validated, the streamlining of new user set-up, the ability to restrict the viewing rights of users if required and the addition of several new reporting parameters. We have also included numerous enhancements to the user interface to make it easier than ever to update project information and navigate around.

If your organisation is struggling to keep on top of its procurement cost reduction activity and is looking for a way to hold and update all that information in one place, providing levels of visibility and control not possible in spreadsheets, then please get in touch. We would be delighted to have a chat with you and provide a full demo of our Tracker.

Case Study: Sapa takes its savings reporting to the next level with Provalido

Sapa’s central strategic procurement function had been closely tracking savings for many years, but they were increasingly aware that their spread-sheet based system for collating and reporting savings was becoming difficult to maintain and manage due to the sheer amount of data and number of users. A decision was made to find a new solution for tracking cost reduction projects and reporting savings that met the following basic criteria:

·       Cloud based (software as a service)

·       Simple to use

·       Ability to handle local and central projects

·       Approval functionality

·       Ability to handle 200+ users at 100+ sites globally

·       Capacity to handle 1,500+ projects per annum, plus the upload of historic data

·       Cost effective

Following a robust sourcing process, Sapa selected Provalido as their new savings tracking provider.

In order to fully meet Sapa’s specific requirements, in particular the ability to manage projects at a central level with approvals at a local level, some enhancements were required to the Provalido tool. A workshop was held to fully discuss and identify the best way to implement these requirements. At the same time an implementation plan was agreed. From start to finish, implementation was achieved in 7 weeks, which was exactly on plan. This included:

·       Coding, validating and testing the enhancements.

·       Uploading Sapa’s category hierarchy, organisational structure as well as data from over 1,500 historic projects into the Tracker.

·       Creating bespoke User Guides to match Sapa’s processes.

·       Conducting training for 200 users via 14 web-based training sessions

Sapa went live in January 2015, and in the first 3 months following implementation over 80% of the users were active in the system, showing an extremely healthy level of adoption. As with all Provalido’s customers, Sapa continues to play an active role in suggesting further enhancements and new functionality within the Tracker.

Peter den Dikken, Vice President of Strategic Sourcing at Sapa said:

“The Provalido Savings Tracker has greatly enhanced the way we report our savings, giving us more control, efficiency, visibility and credibility. The service and collaborative approach that has accompanied the SaaS solution has also been outstanding, and I would whole-heartedly recommend Provalido to any organisation looking to upgrade their savings tracking technology and process.”

Paul Gurr, Managing Director at Provalido said:

“We are delighted to count Sapa among our customer base. They have a thoughtful and progressive approach to measuring procurement savings and their valued input continues to help our Savings Tracker evolve which benefits all our customers.”

About Sapa

Sapa A/S is the world leader in aluminium solutions, shaping a lighter future through a global reach and local presence within extrusions, building systems, and precision tubing. Sapa has 23,500 employees in more than 40 countries, with headquarters in Oslo, Norway.

For more information please visit www.sapagroup.com

About Provalido

Provalido is the provider of an on-line SaaS solution that helps organisations plan, manage and report their procurement cost reduction activity. Based in the UK, Provalido has customers in 6 continents.

For more information and to find out how Provalido's Savings Tracker can transform the way you manage your savings, please visit www.provalido.com

News: Provalido Announces Odesma Contract

Following on from our partnership agreement revealed earlier in the year, Provalido is delighted to announce a contract with Odesma Ltd to provide our Savings Tracker for use on a major procurement transformation programme Odesma is delivering for a global FTSE 250 customer.

Odesma’s team of category experts will be using Provalido’s cloud based Savings Tracker to manage and report their transformation projects, from the creation of ideas through to implemented savings.

Stakeholders at Odesma’s client will have access to the Tracker for real-time visibility of the programme and the benefits being delivered at a macro and micro level, as well as using the workflow functionality to approve projects at key milestones.

Paul Gurr, Managing Director of Provalido said “We’re proud to be a part of the best-in-class technology portfolio that Odesma is utilising to support this significant programme. This contract also expands our user base into a 6th continent making the Tracker a truly global tool.”

Ed Cross, Managing Director of Odesma said “Underpinning our delivery with the best technology is vital and the Provalido Tracker brings efficiency and transparency to our benefits reporting, being extremely simple for both our consultants and our client to use.”

Provalido Ltd is the provider of a cloud based savings tracking solution that helps organisations plan, manage and report their procurement cost reduction initiatives.

Odesma is a new breed of advisory business whose goal is to help clients create immediate and sustainable improvements in the performance of their business. This is done through a combination of experience and application of the best talent and technology in the market. Business & procurement solutions are enabled through the unique Procurement PeopleCloud TM.

For further information please contact:

Paul Gurr, Provalido Ltd

paul.gurr@provalido.com   +44 (0) 20 3287 7607   www.provalido.com

Ed Cross, Odesma Ltd

edward.cross@odesma.co.uk   +44 (0) 161 433 7833   www.odesma.co.uk

News: Savings Tracker Version 4.1 Live Today!

We are pleased to announce that version 4.1 of our Savings Tracker is now live. This is an incremental upgrade on the previous version and highlights include:

  • Additional Quick Buttons on the home page to take you straight into creating a project or managing your approvals.
  • Simplified approval functionality. Approvers can now see all their pending approvals in one list and are presented with an Approval Summary Report for each project, providing all the information needed to make an approval in one place.
  • Customised project creation process. Clients can now more easily select which information should be completed by their users when creating projects and in what order this should be presented.
  • Two new types of custom field have been added – number and multi-select dropdown. You can also now change the display order of custom fields.
  • Various minor improvements to the reporting including grand totals on project reports and the addition of countries as a filter.

Most of these enhancements are the result of direct feedback from our customers and help to make our Savings Tracker easier to use than ever. If you’re not a customer, contact us today to find out how our Tracker could transform your cost reduction planning, management and reporting.

 

6 Tips for Building Your 2016 Savings Pipeline

It’s getting to that time again when procurement folks, egged on by their finance colleagues, cast their eyes towards the next calendar year and start to put together a savings pipeline. For some organisations this in an ongoing iterative process, for others it’s typically an annual cycle. Whichever way you do it, here are 6 tips for building a savings pipeline.

1.     Tackle at least a third of your managed spend. It’s good practice to address most areas of spend at least every 3 years, so therefore at least a third should be looked at each year. In many cases, this should be more frequent, so treat a third as a minimum.

2.     Don’t be constrained. It’s easy to dismiss for example spend that’s under a long term contract, but although a long term contract may restrict what you can do, it doesn’t necessarily mean there’s no room for cost reduction. Savings can take many forms including demand management, efficiency improvement etc, so it’s not all about reducing prices. Equally don’t be constrained by what has or hasn’t been done before. Think creatively.

3.     Look for areas of spend where there have been changes. These could be commodities where supply & demand has fluctuated, or it could be supply markets where there has been recent consolidation or innovation. The change could also be internally driven like a dramatic increase in demand. Change often brings opportunities for cost reduction.

4.     Engage with stakeholders and other areas of the business. Ask them for ideas and discuss your thoughts with them. As well as generating more opportunities, communication and inclusion at the front end should help with buy-in further down the line.

5.     Be realistic. Treat the pipeline like a funnel. Just as a sales funnel narrows down, expect your savings funnel to do the same. Not every idea will come to fruition as a saving. Therefore, apply a probability to your ideas and make sure you have enough to ultimately reach your savings target. Also be realistic about timescales. Allow sufficient time for implementation and make sure projects are started in good time in order to maximize the return within the year.

6.     Track how accurate your forecast is. Your pipeline will produce a savings forecast. We all know that some people are prone to be too bullish about what can be achieved while others will naturally “sand-bag”, but in order to improve your forecasting capability for the future, keep a track of how your forecast evolves over time and how it compares to the realized numbers when they start rolling in. If you’re spot on, this will add credibility to your forecast next year, if you’re not, then find out why and figure out what you can change to become more accurate.

So have fun building your pipeline and creating a savings forecast, and if you'd like the convenience of doing this all in an on-line tool where you can also then manage your projects and report your realised savings then of course we'd be delighted to hear from you here at Provalido!

News: Savings Tracker Version 4.0 Now Live!

We’re delighted to announce another major upgrade to our class-leading Savings Tracker as it continues to evolve at a rapid rate. Highlights of the new version are:

  • A new reporting engine that provides over 2,000 variations of reports with an intuitive report-building interface.
  • Enhanced drill-down capability to get right into the detail of where your savings are coming from.
  • A fully configurable dashboard on the Home Page enabling you to see exactly the information you need each time you log-in.
  • Numerous other usability improvements to make creating and updating your savings projects easier than ever before.

If keeping your savings planning and reporting up to date is giving you a headache, take a look at our Tracker and see how easy it could be to get instant visibility and control of all your cost reduction activity. Take a free 30 day trial or ask us for a full demo today.

The Provalido Savings Tracker is an on-line solution that enables organisations to plan, manage and report their cost reduction activity in one easy-to-use tool. It’s suited to all sizes and types of organisation and is currently being enjoyed by customers in over 30 countries.

Why Procurement Savings are still Relevant

Apparently, best in class procurement has moved away from focusing on savings. Instead, it focuses on “creating value”. After all, just trying to spend less is not a good way to grow a business and it’s uncool to spend too much time thinking about procurement savings - you’ll look like a dinosaur. Besides, if procurement is doing its job right then won’t the potential for savings evaporate over time anyway?

I’d like to disagree.

While savings are not the only focus of a procurement department, they remain an important metric and will continue to do so. Here are 2 reasons why.

1. Change happens.

Why do we never reach that procurement utopia where the pricing is optimised and there are no more savings available? Because things change.

Change is inevitable, and this means adjustments need to be made. What made sense from a procurement perspective last year, may not make any sense this year. The change can relate to your own organisation, your suppliers, the markets you’re selling into or the markets you’re buying from. With change comes the opportunity to reduce costs. Just look at any press release about a merger or acquisition and procurement savings will be referenced as a key benefit.

Innovation also brings change. Innovation is a great buzzword for procurement but it’s not the innovation itself that’s the goal, it’s the increased profit that it can bring. This may be purely through revenue growth, but more often than not, it will also include cost savings.

2. Savings are a tangible measurement.

There are many KPIs that can be used to measure the effectiveness of procurement organisations, and I’m not advocating purely measuring on savings, but let’s face it, compared to other measurements savings are tangible, real, they’re actual money and (relatively) easy to measure. The fact we often make a mess of measuring savings is the topic of another article. Just as it’s easy to give sales professionals sales targets, it’s easy to give procurement professionals savings targets.

We look after our own money by switching to the best broadband deal, or using price comparison websites to minimise insurance costs and organisations expect their procurement departments to behave in the same way. CFOs will invariably look to Procurement for savings and the majority of advertisements for procurement roles today, both junior and senior, refer to “delivering procurement savings” or “setting savings targets” and such like.

Savings are like Lego 

Most of us probably played with Lego in our youth, and despite some tough times in the 1990s it’s as popular as ever today. Despite staying fundamentally the same, it’s reinvented itself over the years and become smarter in order to stay relevant. Savings may have suffered some image issues in recent years due to the lack of credibility in many numbers being reported, but by becoming smarter in the way we track and report, savings too have been reinvented and are as relevant as ever in today’s environment.

So go on. Embrace that savings target. Deliver that benefit. Those savings are here to stay.

4 Common Sense Rules for Running RFPs

eRFX technology has transformed the way we run RFPs, enabling us to easily collate and evaluate huge amounts of information from bidding suppliers. Great, right? Well, like all powerful tools, eRFX platforms can also be used in a bad way. Having run hundreds of RFPs and now being in a position where I am receiving them, I often despair at the quality of the RFPs that come through, particularly via eRFX platforms. I would implore anyone running one to consider the following principles:

1. Only ask for the information you really need.

We recently received an RFP with over 200 detailed questions plus requests for 25 pieces of documentation, all for a non-critical, standard SaaS solution. Needless to say, my initial reaction was “Is it worth it?” and then, being unsure of the answer, “How do we avoid spending huge amounts of time on this?” Ask the questions that are genuine “go/no go” criteria, and ask the questions that will help differentiate the wheat from the chaff, but keep it brief. You will end up with more responses and responses of a higher quality if you do so.

2. Don’t make it completely impersonal.

It’s possible to run the entire process with no verbal or physical contact, and this may seem efficient, but how much are you missing by doing this? Unless you’re buying a genuine commodity in which case you’re more likely to be running an RFQ, make a point to talk to all the bidders prior to releasing the RFP. Explain the process, make sure they understand where you’re coming from, get a feel for whether they’re the kind of people you would like to work with or not. Verbal communication builds trust so much more quickly than written and it’s important that the supplier trusts you as well as the other way round.

3. If you have a scoring system, have one that makes sense.

There’s been a lot written about this, but many organisations create elaborate weighted scoring systems without understanding how they work. Any system that splits price and non-price criteria will mean that at some point a poor solution will score better than a good one if it’s significantly cheaper. Make sure you understand and agree with where that cross-over lies. In addition, ensure the suppliers understand something of which aspects of their response will be regarded as important, so they’re not shooting in the dark.

4. Think about the specific product or service you are buying.

There’s no one-size fits all for running RFPs so use common sense rather than slavishly following a fixed process. In some cases, you may want to meet with the bidding suppliers first to understand more about their offering prior to inviting them to bid, in other cases this can wait until a later stage. In certain instances 200 questions may be appropriate, in others 10 may suffice. Sometimes an eAuction will be the best method of negotiation, but sometimes not. Think about what’s important and create the most efficient process (for both you and the suppliers).

eRFX technology is great for finding the best fitting solutions at the optimum cost in the most efficient way, but it only works well if we don’t switch off our brains while we use it!

10 Golden Rules for Measuring Procurement Savings

Measuring procurement savings. Don’t you just love it? How many hours are spent by organisations every year discussing / arguing about what constitutes a saving? Procurement may have one view, finance may have another, the budget holders may hold a different opinion, and the consultants you hired to run a cost reduction programme probably have a completely different number entirely.

I’m not going to get into the debate of whether spending less but at a higher price is a saving (“we managed demand”), or spending more but at a lower price is a saving (“we reduced the cost-per price”), but here are my 10 rules of good practice for savings measurement.

1. Clearly define your savings types and how they are measured.

Key factors here are what’s permissible as a baseline, especially if there isn’t an obvious last-price-paid, how fluctuating markets are catered for, if at all, how first-time or one-time purchases are measured, and how you handle one-off payments like signing bonuses or volume rebates. There’s often no absolute right and wrong, although there is common sense and also good accounting practice.

2. Be completely aligned with Finance.

This really goes without saying, but if Procurement is to have any credibility in the business when it comes to declaring savings numbers, the CFO needs to at least be in agreement that the savings definitions and measurement methodology are sound.

3. Reward innovation.

It makes me sad when I talk to companies who think measuring Purchase Price Variance is everything there is to measuring savings. Procurement has evolved far beyond simple price reduction and is now much more focused on adding wider value to the business. With this in mind, make sure that the kind of value that can be derived from lateral thinking is measured. What if we don’t buy this thing at all because we can do things completely differently, or what if we actually pay more but we get all this great additional service that really helps our efficiency?

4. Look at the total cost.

Following on from rule 3, remember piece price alone is not everything. Make sure delivery, payment terms, supplier management, one-off costs, life-cycle costs etc. (as far as reasonable) are taken into account when calculating savings.

5. Understand your cost of capital.

$10,000 now is not the same as $10,000 in 12 months’ time. Make sure you know the value of a signing bonus compared to a retrospective rebate, and how much lower a price on 15 day payment terms needs to be to provide better value than a price at 90 days. Knowing the value of your cash will also help of course in negotiations.

6. Don’t stop tracking savings at point of contract. Measure what actually happened.

It’s a well-documented fact that up to 40% of savings go missing somewhere between the point of contract and the savings actually materializing. Some form of post-contract monitoring, real-time or retrospective adjustment is key to ensuring a decent level of accuracy.

7. Be accurate, but don’t seek perfection.

As a balance to rule 6, don’t be tempted to take things too far. It can be easy to want to take savings accuracy to the nth degree. This might be possible in some instances, depending on technology and particularly on direct materials, but in many cases it’s simply not realistic to be 100% accurate across the board. Make a judgement call on effort vs return. With a robust process and the right tools, the high 90%s should be easily achievable.

8. Don’t forget the increases.

We all love declaring our cost reductions, but how many of us like to admit our increases? It’s a fact of life that these sometimes happen and we can’t completely avoid them no matter how careful we are. If we forget to include these and measure them we only see a distorted picture.

9. Have a clear governance process.

Ensure that savings are approved. The level and type of approval may vary depending on spend, criticality etc., but it’s important that the savings rationale and calculation method are ratified and agreed, to help standardisation and provide credibility.

10. Remember it’s a means to an end.

The final rule is to keep the big picture in mind. Savings in isolation don’t mean a whole lot, in fact they could be bad for the business if reduced spend in certain areas is stifling productivity. It’s what those savings bring the business in terms of value that’s important, whether it’s profit or the ability to spend more to fund growth. It’s important to keep this in focus.

News: Savings Tracker version 3.0 now live!

We’re pleased to announce Version 3.0 of our Savings Tracker is now live. This features numerous enhancements including:

  • Master Projects. Create and administer multiple local projects at once within a Master view. This is ideal for centrally led projects that are being implemented / monitored across multiple locations.
  • Optional link between Approvals and Project Status. It’s now possible to make Project Statuses contingent on certain Approval Types. For example, if your process dictates that users must have approval before savings become realised, then it’s easy to create and link a Savings Approval to the relevant Project Status.
  • Advanced Admin Reporting. The Savings Tracker now allows administrators to view log-in activity of users as well as when each project was last updated in order to monitor usage of the tool.

There have been many other tweaks to make the Tracker more user friendly than ever, including additional short-cuts to speed up navigation and enhanced help text to clearly explain each field.

If you’d like to see all this in action, please don’t hesitate to get in touch. We’d be delighted to give you a tour.

The Provalido Savings Tracker is a cloud-based solution that helps organisations plan, manage and report their cost reduction activity in one easy-to-use tool. For more information please visit www.provalido.com or call +44 (0) 20 3287 7607.

News: Provalido & Odesma Announce Partnership

We are excited to announce that we have entered into a partnership with Odesma Ltd, an innovative new business advisory company who are taking the SaaS model a step further. Here's the official press release:

Odesma Ltd are pleased to announce their partnership with Provalido Ltd, providers of a market leading savings tracking SaaS solution. The agreement will give Odesma, its customers and network the opportunity to utilise a best of breed tool for planning, managing and reporting their cost reduction activity.

Paul Gurr; Founder of Provalido Ltd said:  Odesma are mould breakers pursuing value improvement from excellence in third party spend management founded on the principles of the cloud and the SaaS World. The Provalido solution will allow Odesma’s customers and delivery team to actively manage and track savings from third party spend management. We are delighted to be partnering with a new breed of advisory firm.

Ed Cross; Managing Director, Odesma Ltd stated: Provalido’s savings tracker combines ease of use with the high levels of flexibility and functionality demanded by companies at the leading edge of savings reporting. Provalido’s substantial procurement experience is evident in the way the tool has been designed, making it extremely practical for both small and large organisations.

Odesma is a new breed of advisory business. Whose goal is to help clients create immediate and sustainable improvements in the performance of their business. This is done through a combination of experience and application of the best talent and technology in the market. Business & procurement solutions are enabled through the unique Procurement PeopleCloud TM.  

Provalido Ltd is a young company dedicated to providing the very best in procurement savings tracking technology by offering a cloud based tool that is easy to learn, enjoyable to use, flexible for different needs and useful to multiple areas of the business. 

For further information, please contact:

Odesma Ltd                                              Provalido Ltd

Ed Cross, Co-Founder                             Paul Gurr, Founder

Steve Trainor , Co-Founder

Tel: 0161 433 7833                                   Tel: 020 3287 7607

www.odesma.co.uk                                  www.provalido.com

How to measure one-off savings

Are one-off savings real savings? What effort should be applied to obtaining one-off savings? How should they be reported? Many companies struggle with these questions.

A few years ago I worked for a procurement outsource provider managing indirect spend categories for a large FMCG company. Naturally, although we had a wide range of performance metrics, the vast majority of the focus was on delivering savings, to deliver a direct return on their investment.

One golden rule for claiming savings was that we could only claim sustainable savings. One-off savings didn’t count. By sustainable, I mean the reduced cost could be maintained year after year.

This rule brought a number of implications. Firstly, it meant savings on capital spend were virtually impossible. Secondly, we had no incentive to chase one-off rebates or temporary savings, focusing instead purely on sustainable savings.

So is this right? Should procurement ignore one-off savings? Perhaps in some environments it makes sense, but of course they still have some value, they just need to be treated differently to sustainable savings. There are different ways of doing this – here are two.

One is to report the two types of savings completely separately with separate targets. Procurement should still be motivated to go after the one off savings, particularly if large portions of spend are non-repeat, making sustainable savings impossible. The short term value is the same, and if one-off savings are achieved every year, they become sustaining, albeit you have to repeat every year to keep them.

The second way is to look at a one-off saving as a cash injection into the business. You can’t reduce future budgets based on these savings, but you do have more cash. Therefore, putting a figure on that cash in the form of a cost-of-capital saving is an accurate way of normalising to the sustainable savings. So a £1m one-off saving at 10% COC would equate to £100k in sustainable savings.

Whatever the numbers are, it’s key that your measurement is aligned with your Finance colleagues’ accounting principles so whatever the numbers are, they are reported in a way that provides credibility and breeds confidence.

3 things to expect when we buy

About a decade ago I visited a toilet seat manufacturer in Denmark. What struck me most about this company (other than the fact they made very nice toilet seats) was the almost total vertical integration. They moulded the plastic, pressed and fabricated the fixings, bagged the screws - almost everything was made from scratch. In 21st century Europe, this was highly unusual.

Every time an organisation buys something it’s made the choice NOT to make it itself. Most of the time the decision is easy. If you need a new computer, you could theoretically build one from scratch (although mining and processing tantalum and the like might prove tricky), but the total cost, including the time to build, learning how to do it etc. would be much higher than buying one from a company that specialises in manufacturing computers.

But when the cost benefits aren’t so obvious, why do organisations buy rather than make? Assuming there’s a need to meet and it’s not a capacity based decision, there are 3 main reasons.

  • Convenience – to save time and effort by buying a product or service that’s ready-made, rather than re-inventing the wheel.

  • Expertise – to be able to focus on core competence while the supplier provides theirs, optimising efficiency and quality.

  • Innovation – an expert in the field should also be at the forefront of the applicable technology and developments, ensuring that the product or service provided remain among the best in class.

When selecting suppliers or assessing ongoing relationships, these points should be among the criteria. Are your suppliers convenient to deal with? Do they demonstrate that they are experts in their field? Do they regularly bring you innovative ideas and solutions? Whether you’re producing toilet seats or spacecraft, if you’ve decided to buy rather than make, these should be expectations, not optional extras.

Why benchmarking is the lazy answer

Price benchmarking happens all the time, but is that because it’s good practice or because it’s a lazy, easy, placebo?

Some price benchmarking is made against “industry data”, mainly generic reports that provide some guide on pricing in a particular field. Other benchmarking may be made against a specific set of data, for example a consultancy using anonymous data from another engagement. The issue with these is that the data is usually either too generic, or too specific to another company to be meaningful.

At other times price benchmarking is achieved by obtaining quotes from alternative suppliers. This is particularly dangerous. Going to the supply base on a benchmarking exercise immediately suggests there is no real intent to move away from the current supplier. Many suppliers will figure this out and therefore quotes will be all over the place, from the low-ballers trying to stir things up, to the high quotes from suppliers who have no incentive to really try, and anything in between, rendering the data meaningless.

In addition there are the issues created by treating the supply market badly. Buyers often embrace the notion of maintaining good relationships with suppliers, but regularly overlook the benefits of good relationships with the supply market in general – their potential future suppliers. Frequently asking for quotes just to go back and negotiate with an incumbent is certainly not a good way to build relationships with either the market or the incumbent.

So what’s the alternative? A robust sourcing and ongoing category management process should give confidence that the market price is being met and eliminate the need for benchmarking, with the ongoing management being particularly key. It’s not the easy way, but the benefits (which will be far broader than just good pricing) will be worth it.

Keeping RFPs simple

E-Sourcing tools have enabled procurement professionals to relatively easily create, distribute, collate and analyse extremely complicated Request for Proposals. Complex weighted scoring mechanisms, even combinatorial auctions have become the norm. However, it’s tempting to get carried away using complex templates and scoring criteria that are in all honesty overkill for the product or service that is being procured.

At a simple level, suppliers will assess RFP opportunities either knowingly or unknowingly using 3 main criteria:

  • The cost of bidding. How much resource and effort do I need to navigate the bid process to get to a potential agreement?

  • The likelihood of being successful. Is this a genuine level playing field? Am I an outside shot? How have I fared previously in similar bids?

  • The attractiveness of the contract. How much do I really want this business? What are the short and long term benefits?

If the supplier has a negative feeling about at least 2 of these, then there is a fair chance that they will either not bid, or perhaps put minimal effort into the early bid stages.

To combat this, buyers should consider the following guidelines:

  • Keep the RFP as simple as possible, using an e-Sourcing tool that’s extremely user friendly for suppliers.

  • Only release the RFP to selected genuine potential suppliers and let the suppliers know this. You need enough to generate competition and reach the market price but not so many that suppliers lose heart.

  • While the prime aim for the contract is to suit your own business’ needs, try to make it as attractive as possible for suppliers, for example a reasonable contract length, reasonable review frequency, good volume forecasts etc.

 Not only will this increase supplier engagement, but it will also make the process more efficient from the buying perspective too.

Fail to plan, plan to fail

Have you ever found that you only want to plan things properly when it’s for an activity that you don’t really want to do? Certainly that’s my personal experience. If we have a task that excites us then it’s tempting to just want to jump straight in and planning seems like an obstacle that slows us down. On the other hand, with tasks we are not looking forward to, planning how to do them is a great procrastination tool.

We often hear that planning is an essential part of any project. I used to have a boss who liked to remind me that if we “fail to plan” then we “plan to fail”. He was right of course, but I believe there a couple of key points that are worth bearing in mind with regards to planning.

  • The scale of the plan should match the scale of the task. We may have the best project plan templates in the world, and sometimes it’s tempting to try to make a task fit a certain type of plan, but not all projects are the same. Some may last many years, others only a few days. The level of detail should be commensurate to the complexity and importance of the task.

  • Most plans should have a degree of flexibility. Usually as we progress through a project, we gain more knowledge about the tasks, the obstacles, the bottlenecks, and it should be possible to refine a plan to make it more accurate. Slavishly adhering to out-of-date plans is seldom the most efficient way of working.

  • People involved in a project should be aware of the plan. It’s no use if the project manager is the only person with access to and knowledge of the plan. The plan should act as a driver for all the stakeholders involved.

The Antarctic explorer Roald Amundsen once said “Adventure is just bad planning”. As his contemporary Captain Scott found out, this can have disastrous consequences.

So let’s plan, and plan well.

You get what you measure

You’ve probably heard the saying “you get what you measure” and this is certainly often the case with procurement. When KPIs are set at an individual or team level they are designed to shape the focus of that particular individual or team. Procurement KPIs may be multi-faceted and include “soft” objectives which are measured subjectively. The most commonly occurring ones however are the objective, number-driven KPIs, quality focused such as parts-per-million targets, consolidation focused supplier reduction targets, or the most common of all – savings targets.


Measuring savings is no simple task and behaviour will be altered depending on the nuances of the measurement. For example I worked at one company where no carry-over from one calendar year to the next was allowed, so savings starting in December only achieved one twelfth of the value of an equivalent saving starting in January. This is of course tempted buyers into delaying savings implementation until the new year in order to maximise the recorded benefit.


How rebates and signing bonuses are measured can also affect behaviour. If every rebate received can be “banked” as a saving, then there are likely to be more rebate-based deals where savings can theoretically be banked every year, than straightforward price reduction were the benefit may only be claimed once.


The key for any business is to understand the behaviour it wants to encourage, then set the savings measurement rules and KPIs accordingly. Is a price reduction better than an equivalent rebate for the business? Is an extension of payment terms from 30 to 60 days better than a 2% price cut? Would just buying less of something (e.g. travel) be better than reducing the price so people can buy more for the same total cost? Once a business can answer these questions, setting its goals appropriately will encourage the procurement team to deliver real benefit.

The great savings black hole

It’s a familiar situation. The CPO is declaring impressive savings of several million dollars. The CFO simply doesn’t believe it. It’s not that he or she thinks the CPO is making the numbers up, but they are just not flowing through to the financial reports. So where exactly do they go?

Depending on which research paper you read, savings identified through strategic sourcing or other procurement-led projects, shrink by 30 to 40% by the time they are implemented and fully realised. One major cause of this shrinkage is compliance, or lack of it, particularly on indirect categories. Poorly specified requirements leading to price creep at the point of contract or beyond can be another cause. Timing is another factor, with implementation often taking longer than anticipated resulting in a significant lag between when savings are reported and when they actually show up.

So how can the CPO’s numbers gain credibility with the CFO?

The key is a robust process. This may require more vigour and attention throughout the entirety of a cost reduction process. Rather than focusing the majority of time and effort on the negotiation in the middle of the process, time spent upfront with key stakeholders will lead to a better implementation down the line and will also enhance understanding of the challenges likely to be faced and therefore a more realistic savings estimate. Time spent on the back-end, carefully project managing the implementation and seeing through to completion will help deliver savings on time.

Of course, this enhanced vigour will require more resource, which is why it is essential the process is backed up by an appropriate technology. Technology that supports both the project management and savings tracking aspects will take some of the burden off the procurement professionals and provide them with the time to focus on plugging that black hole.