Viewing entries tagged
procurement savings

How Easy Can Implementation Be?

As well as reducing pricing dramatically, the rise of stand-alone, best-of-breed tools to strengthen procurement processes and improve efficiency has brought another key benefit - easy implementation.

Whenever we’re talking to potential customers, one question we’re always asked is “How easy / quick is it to implement?”. The answer is: “It’s very easy (you don’t need any involvement from IT on your end), and it’s very quick (you can be up and running in a fully configured environment in as little as one day)”. This is still a surprising answer to some, but it’s becoming increasingly normal for this kind of technology. Gone are the days of lengthy, complex and costly projects just to get the thing off the ground.

To give a real-life example, recently we were contacted on a Monday evening by an organisation who were looking for a more robust and efficient way of managing and reporting their savings than their current spreadsheet-based process. On the Tuesday we provided a demo of our system via a web meeting. On the Wednesday we discussed the data we needed to build and configure a tailored environment for them (their category taxonomy, organisation structure, savings types, approval rules etc). On the Friday we received their data, built and configured their environment, and provided access to their super-users to check everything out.

During the week after we conducted web-based training sessions for all their users and they were up and running in the Tracker, having taken a huge step forward from their spreadsheet process in just a handful of days.

So just because something falls into the ‘technology’ bracket, doesn’t mean it needs to be complicated to buy and implement. If you’d like to understand how our Tracker can help your procurement team manage its cost reduction activity in a more efficient way – just get in touch and arrange a demo. If you like what you see, you could be using it this time next week!

News: Savings Tracker Version 5.3 Released

Managing your savings pipeline just got easier than ever as we release version 5.3 of our Savings Tracker this week. All our customers automatically receive the new version and can immediately use the added functionality.

At Provalido we’re not ashamed to say that we lean heavily on our customers to shape the future of our Savings Tracker. Almost all our upgrades come from ideas and suggestions made by our global user-base of more than 1,800 procurement and finance professionals. One of the reactions we often get from customers when we discuss pending changes is “We hadn’t thought of that but we would find that really useful!”. That’s the beauty of using a cloud based system where everyone benefits from an idea, whether it originated in your organisation or not, and best practise can quickly spread across the user community.

Highlights in this upgrade include the ability to configure and save multiple dashboards (both personal and organisation-wide), greater flexibility when managing project plans, improved reporting capabilities and an easier workflow. We’ve also added some more control functions for admin users so you can tailor your environment even further.

Although our Savings Tracker is now far more advanced than the original version 1.0 that we released back in May 2014, we have always been guided by two key principles. Keep it simple, and keep it flexible. Despite the generous functionality it’s now easier to create and manage projects than it was in the first version, and the system remains incredibly versatile so that no matter how you manage and report your savings, our Tracker can fit to your process.

If you’re still using spreadsheets to manage your cost reduction, or if you have another system that’s hard to use or not giving you exactly what you need, please do get in touch. We’re always happy to chat and provide a demo of our system so you can see for yourself just how it could help your organisation, and of course we hope that you too can help shape our future developments!

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.

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!

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.

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.

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.