So far in this series, we've been a bit skeptical of return on investment (ROI) as a means to measure procurement performance. But as organizations get more into the "how" rather than just the "why," ROI does have its place, especially in the area of automation and tools investment. There are certainly places where building an ROI-driven business case – and then measuring accountability and holding those responsible to it – can make sense as part of a broader argument in favor of new or expanding investment. As an example, here are some areas where ROI-driven business cases can make sense as part of a broader business plan and KPI-driven measurement program:
- Proving the business case for sourcing and category-focused investments requiring new talent, expertise (internal or external), tools (e.g., sourcing optimization) and content (e.g., category-specific market forecasts)
- eProcurement – There are many ways to build ROI business cases for eProcurement investment, including but not limited to reducing overall demand (by the nature of employees being actively "monitored"), buying on-contract (to qualify for contract pricing, volume discounts, rebates, credits, etc.), reduced headcount (e.g., fewer transactional oriented buyers) and avoiding unnecessary/maverick spending activity that would not be approved in the first place
- Electronic Invoicing (e-invoicing, EIPP, etc.) – It's possible to build ROI-focused business cases for e-invoicing based on headcount reduction alone (AP) as well as other metrics including avoiding duplicate payments, capturing volume discounts/rebates, etc.
- Supplier management – Hard dollar ROI in the area of vendor management can come from a reduction in supplier management headcount (for basic onboarding and management), the ability to accelerate specific initiatives that can lead to top line (e.g., new product launch/introduction) or bottom-line (eProcurement, working capital management, etc.) returns
If you notice a trend in the areas we explored above, many are undoubtedly tools-centric. This should not be a surprise as technology is perhaps the best area to build a ROI-driven business case. But of course it's also possible to flip the argument on its head for these areas, and in fact make procurement ROI secondary compared to other, potentially even more attractive benefits and measurements (which we'll explore as this series continues).