Procurement savings part 1 – Sievo publish their secrets

We're going to feature a number of posts in the next few days around  measuring procurement performance and savings.

It can be perceived as a bit of an " anorak" topic, but to most senior procurement people I know, it is high on their priority list. Putting it simply, if you can't measure what you're doing and what your output is, then how do you justify your existence? How do you make the case for more staff, more investment?

And a big part of measuring performance tends to be "savings".  I don't see that, for most procurement people in most organisations, there's any easy way of getting round this. I don't feel it is the only aspect of performance that should be measured of course, but it is unlikely in my experience that the CFO or CEO is going to let procurement get away with ignoring such a fundamental part of our role.

But the measurement needs to be done well or it can be worse than meaningless - as we'll discuss tomorrow.  We've featured Sievo previously, with their savings measurement and analysis solution, and they've now produced a neat little book that explains their methodology in more detail. "Procurement Contribution to Financial Performance" is well written, but I must warn you, it does contain a bit of (fairly simple) Maths to explain how "real" savings are calculated. Here's an extract form the book as an example.

Currency Impact = Spend year n x (1-(ExRate Year N-1 / ExRate Year N))

As it lays out a fiar bit of their intellectual property, they are understandably not handing it out to everyone willy nilly, but if you are a procurement professional and would like a copy, email : emmanuel.lebot@sievo.com.

As well as identifying real savings, the Sievo methodology splits out the drivers of savings - is it currency, volume (demand) , substitution (specification change), or price? As we said in our comments on the UK Government's efficiency savings last week, it is also important to understand those drivers.  Nothing wrong with taking advantage of currency savings, or indeed driving volume / demand reduction as the government is doing, but we should also focus on substitution and what Sievo define as "price" - the basic procurement task of getting a better deal from suppliers.

Anyway, we'll be back tomorrow with some thoughts on how savings measurement can drive quite the wrong behaviour!

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