We continue our series on the top 25 procurement myths. Some you may know, others maybe not. You also may agree with us on certain ones and not others. But, the important thing is that we have this discussion. We will post 1 a day here on Chief Procurement Officer, so make sure to check back on the site to catch them all.
10. Sourcing is about effectiveness, P2P is about efficiency
This is a subtle one, but important nonetheless. Is tempting to think about P2P as a process that is all about efficiency and freeing up people to focus on more strategic procurement processes focused on spend effectiveness rather than headcount-based process efficiency. Who could argue with that, right?
The problem, however, is equating P2P with efficiency and sourcing/SRM with effectiveness. Efficiency and effectiveness are important for both process areas, and in fact, efficiency is more impactful on sourcing then it is on P2P. In other words, I will get much more business impact by freeing up 30% of a category managers time then 30% of an A/P associates’ time. The former creates higher investment and 10 times ROI, while the latter might slightly reduce process costs. Also, hopefully you do not have common resources doing transactional buying and high-impact strategic sourcing and supplier collaboration, right? This is not to say that P2P can’t be managed more strategically. It surely can. According to a Hackett Group analysis, a $10 billion CPG firm could save $3-5 million in transactional costs in P2P, but $4-61 million in benefits through more strategic management of P2P. So, effectiveness and efficiency are both important, and in fact, they are not at odds with each other but help each other. We’ll discuss this in our next myth.