The Savings Tracking Category

Procurement Metrics: Understanding the Economic Language of Value (Part 2) — Expenditures, Expenses and Financial Reporting (CapEx, COGS and G&A) [Plus+]

finance

In the first installment of this series, we discussed the term “spend” (the noun, not verb), in the context of supplier spending, in a fair amount of detail. We discussed addressable spend, and what's included and excluded for the purposes of spend visibility/management, but also for the purposes of using spend within procurement performance measurement and benchmarking. In this installment, we dive a little deeper in terms of comparing and contrasting spend to other terms, as mentioned in the title.

Procurement Metrics: Understanding the Economic Language of Value (Part 1) — Spend [Plus+]

buzzwords

One of the challenges that procurement faces is "speaking the same language" as finance, as well as the language of its stakeholders. A marketing department, for example, may use the term “investment” for its spending. Similarly, many procurement organizations categorize some of their added value in a category called “cost avoidance,” even though the term is not taught or recognized formally by the finance function.

Even within procurement, many terms are used inconsistently. Consider the term “addressable spend.” Is all spend addressable, as represented by cash disbursements going to external parties? Or is it supplier spending that is reasonably under the influence of procurement? If you say the latter, what defines “reasonable”?

The friction and misalignment common between various functions often results from stakeholders not having a basic understanding of terms that seem similar but yet can be very different. This problem is exacerbated when the stakes are high and you start getting measured and benchmarked on these metrics. To prevent this, procurement needs to be “business multilingual” and understand the variations of terminology so that it can best speak these languages and help the organization make the best decisions to create value.

This is what we’ll address in this analysis, with a focus on procurement and finance within the enterprise. Clearly defined terminology is the foundation from which higher-level concepts, performance metrics and benchmarks can be consistently understood — and improved.

Sponsored Article

How To Avoid Fake Spend Under Management (SUM)

Supply Chain Fraud

Savings is the primary performance measure for procurement. These key savings measures must be qualified relative to the actual spend under management to have true value. A definition that directly supports the savings KPI, however, is not always present. This leads to the illusion that spend is under management when often it is not, thereby deteriorating the overall savings results.

3 Ways For Procurement to Prove Its Value (Other Than Cost Savings!)

Spend Matters welcomes this guest post from Dustin Cochran, director of member development at Corporate United.

Most organizations are focused on three strategic pillars: increasing revenue, operational efficiency and retaining talent. I would say that procurement is already aligned to these pillars. Where they tend to be less aligned is with the strategy of internal departments. However, what I think that procurement professionals should focus on is better promoting how they align with these areas.

7 Tips for Measuring Savings

finance

Spend Matters welcomes this guest post from Paul Gurr, managing director at Provalido.

Although everyone measures savings, there are remarkably few areas of consensus around how to actually do it. Practitioners have spend countless hours debating exactly what constitutes a saving, and although different organizations will have valid reasons for wanting to measure things in a certain way, there are a few principles that can help when considering savings measurement. Here are seven you can start applying today.

Spend Analysis in 3 Lessons: Insight to Action (Lesson 3)

funding

When I last left off with this series, I hinted at some of the needs of the “power user” compared with the business user when it comes to the spend interrogation and visualization. My colleague Michael Lamoureux captured it best when he highlighted some of the requirements of the spend analyst, whose job it is not to work on the dashboard level but to hunt for the untapped opportunities.

The Zen of Spend

zen

As an old Zen Buddhist riddle goes, “If you seek it, you can not find it.” To paraphrase, you'll be miserable if you seek happiness only through specific outcomes rather than attaining happiness merely as a byproduct of living life fully. The same concept applies to cost savings. Procurement groups that only focus on finding purchased cost savings as their raison d’être will not be happy, nor will the stakeholders who own the spending where savings are generated.

Calculate Your True Savings Target Using Predictive Analytics

analytics

Spend Matters welcomes this guest post from Maulick Dave, of GEP.

One of the most popular KPIs used to measure the performance of a procurement organization is savings realized. However, the magnitude of the savings projected at the goal setting phase for the year, or at the start of a sourcing project, is often looked upon with skepticism. How can you verify such cases and set a practical savings target that will improve your planning and decision-making abilities?

Do More Than Follow the Money

Spend Matters welcomes this guest post from Matthew Holzapfel, product marketer at Tamr.

Procurement organizations are looking to deliver value beyond traditional “spent analysis” and newer forms of analytics that can help generate the intelligence to discover this untapped value.

Post-Cyber Monday Reflections — Shifting from Spaving to Saving

Cyber Monday

Well, Black Friday and Cyber Monday are over, and we have a $6 billion hangover to show for it. But, hopefully the money was well spent on a gift for a loved one or someone in need. And most importantly, we got an excellent deal on it! Forget the fact we spent 4 hours fighting the crowds or scouring the web. Forget the fact that the ridiculous list prices were set by a hallucinating clown and a dart board. You, my friend, are a spaver extraordinaire.

How to Create the Perfect Procurement Scorecard [Plus+]

In this Flashback Friday, we look back to another one of our most popular Ask the Expert webinars, Upgrade Your Procurement Scorecard – and Upgrade Your Procurement Performance. Originally recorded back in March 2014 and led by Chief Research Officer Pierre Mitchell, this webinar takes listeners through a variety of steps and questions a procurement organization will need to address to create an effective scorecard for tracking performance.