Measuring procurement savings – part 3

Continuing our series (after a slight delay) on savings measurement, we come on to attributing savings.  This was the issue that generated a question from a reader that set off this whole series- should savings that were clearly discovered and / or driven by business units be credited to 'procurement'?

I think the answer to that is clearly 'no'.  But there is a difference between reporting procurement activity and savings, as opposed to accrediting savings to the procurement function.  I see nothing wrong in the CPO or other functional leader taking the overall responsibility in the organisation for driving and reporting all savings made through third party spend, and making sure that top management are aware of these successes.  But (s)he should not try to claim the credit where it is not due.

So I would suggest a report that covers both direct cashable savings (see previous post) and other meaningful but non-cashable savings, with each activity or project having a 'responsibility' noted against it. Was this a pure procurement saving; or procurement and business / other functional area together; or purely a business initiative?

The other issue I wanted to touch on here is the allocation of 'savings' within the procurement function.  As CPO of NatWest, I ran a structure which is not atypical in large procurement organisations.  I had category managers; then I had managers whose responsibility covered both 'account management' and specific non-category major procurement for a particular NatWest company or business unit (Gartmore, Coutts, Markets etc.).  I also had a team who looked after overall policy, systems, MI etc.

My first idea was to target people pretty directly for savings.  In fact, I think that was what I inherited from my predeccessor.  But it quickly became clear that this led to real turf wars; the Gartmore 'account manager' might keep information from my corporate desktop IT category manager so (s)he could claim credit for the savings...and the category manager thought everything done in their area was 'theirs' to report, even if they had actually had little input, or it was the innovative reverse auction developed by the systems guy that had really made the difference.

Ultimately, I decided that, while I wanted everyone to be assessed very much on personal contribution, when it came to hard-edged stuff such as financial bonuses, we would do it at function level.  We would have an overall savings target and that was it.  Now that's not to say that an individual wouldn't be praised and even rewarded for a mega-savings contribution where they could clearly demonstrate personal initiative; but we would try and  avoid the bitching caused by the whole "you haven't made your personal £1 million savings this year" thing.

I'm not sure I quite got it right; but it is an issue to be aware of as a senior manager.  And, just like the last post in this series, the better your information and data to give you the baseline and measure the change, then the better you can make credible assessments around who is really contributing to the overall targets.

First Voice

  1. Kevin Potts:

    Peter – clearly I have only seen from the outside the situations like you describe above. However, from what I have observed working with leading companies in this area, I wonder if a more appropriate stance for procurement is to attribute savings to the lines of business. My point of view is that procurement is an enabler to driving savings by helping the lines of business execute on a best practice plan. It is the lines of business which actually have to deliver the value. However, if procurement is seen as taking the credit, how can a partnership be achieved?

    Kevin Potts
    VP of Product Management and Marketing
    Emptoris, Inc.
    My blog: http://emptorisinc.blogspot.com/

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