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procurement KPIs

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.