Procurement adds no value. Or maybe we just can’t measure savings properly

Coming back to last week's eWorld, we mentioned Guy Allen's amazing insight that ‘proved’ procurement adds no value.

It came from Andrew Bartolini's CPO Rising survey results, presented as part of his keynote address. One element of the data was around savings. The average organisation saved 7.8% apparently last year, whilst the average target was 7.7%. Funny how close the actual was to the target, eh? You might almost think procurement manipulated the numbers to hit whatever target they are given. You might also share my deep scepticism about savings measurement methodologies, with a few exceptions such as clients of Sievo.

But what was interesting was this. The ‘best performers’ as identified in the survey via a number of  maturity measures saved some 8% of spend apparently – only slightly above that average of 7.7%. Yet these strong performers had something over 80% of total organisational spend under procurement management, whereas poorer performances have only 30% or so.

So as Guy pointed out, all the cost, hassle, reduction in user freedoms that come from greater procurement involvement over that incremental 50% of spend, all that led to just a 0.3% increase in savings? Hardly seems worth the bother really.

Are we all wasting our time therefore? Or is that just another indication that savings measures are deeply flawed?  Interestingly, Bartolini then presented more data that showed firms accounted for savings in six quite different ways. Which, as my learned friend Mr Allen again pointed out, sort of invalidated any real scientific analysis of the numbers anyway.  Even asking the question around savings, with such a divergence of answers based on respondents understanding of the terminology, seems of doubtful benefit as evidenced by the flakiness of firms’ responses.

We’re not knocking the survey generally – there were more useful findings in a number of areas. The ‘top strategies’ were interesting and ‘challenges’ reinforced the usual cry that talent is the biggest problem for procurement right now. Other results were surprising. Even amongst the better organisations, only two thirds use eSourcing apparently,  although again that left us puzzling around definitions. How can an organisation be considered strong if they aren’t using such tools?

Still a lot further for procurement to go anyway.

Voices (2)

  1. Sam Unkim:

    That’s the trouble with percentages.
    Let’s say a company has £1,000,000 of spend and I have 100% under my control. My savings target is 7% so £70,000.
    If I can only influence 30%, then my saving target can only be 7% of the £300,000, therefore £21,000.

  2. b+t:

    Targets are bullshit. Once a measurement is targetified and incentivised it ceases to be valid.

    The closeness of targets vs actuals is no doubt a constant across functions.

    ‘Talent’ is bullshit as well. It means ‘we don’t know what’s wrong but somehow better people will fix things. If the sausage machine is bust and contaminates the mince with rust and grease, better meat still won’t give you a palatable product.

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