Procurement ROI: The Right Metric? (Part 2)

Please click here for the first post in this series.

Earlier this week, we began to explore Guy Strafford's argument that high ROI and procurement performance do not necessarily go hand-in-hand. Summing up his argument, Guy proffers that "Put simply, world-class procurement functions do not have astronomically high ROIs -- think about it logically and you'll see that a world-class procurement function is going to be managing the cost base extremely well, so there shouldn't be continuous, very large scale cash savings".

But what might be world-class, as Guy suggests, "is for procurement to persuade the business to undertake projects which generate low, or even, dare I say it, negative ROIs, which drag the overall procurement ROI down, but ultimately improve business performance. Business leaders are mature enough to understand this. But is the procurement community"? I'll try to answer this rhetorical question by deflecting it to another question that is perhaps even more important in getting to the crux of why so many procurement organizations fail to deliver even a small percentage of implemented savings and value that they could.

This question is not about procurement investing in areas with low ROI for the sake of broader business value and getting the business to understand this. It's actually about the best means for procurement to look at the business and size up what it needs, and then back themselves into this equation (rather than leading with the "savings first" argument). Using this approach, procurement ROI might be significant in certain areas, but as an afterthought to the main business rationale to invest in the first place. For example, automated supplier/credential management systems that on-board and continuously monitor vendor details, materials/substance level insight, spend data, compliance, risk and related information can be used for FCPA and Dodd-Frank compliance, a primary business objective, but also to drive material procurement and AP ROI.

- Jason Busch

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