Key Procurement Tensions/Trade-offs for 2017 – Value Versus Savings

Last week, we outlined five key areas of interest or tensions maybe for procurement in 2017. This week, we’ll look at those in a bit more detail, and in each case, give three key actions for 2017 that might strike a chord for you - let’s start today with value versus savings.

At the various conferences we attended last year, we lost count of the number of CPOs who made this the core of their session. There is no doubt that the profession “gets it” – we understand have to talk about and indeed deliver value not just savings.

That does not mean savings has no importance any longer; indeed, the first key point to make here is that every procurement professional must understand exactly what “value” means to their wider organisation. In some cases, and for some spend categories or items, driving “savings” is indeed how procurement will bring value. And external factors play a role here. If economies turn down or we see inflationary pressure in the UK following sterling’s drop, then those pressures will increase focus again on cost reduction.

But in other cases, value is about other deliverables; helping to improve internal efficiency; driving innovation and ultimately top-line revenue and bottom line growth; or managing reputational or other risks. In large organisations, procurement needs to be considering all of these and more, and different priorities will apply to different spend areas.

However, whilst this is recognised within procurement, the tension comes because many of our senior colleagues (CFOs and CEOs amongst them) still perceive procurement as a source of savings, perhaps allied with a governance and “policing” role.  Ask the same CPOs talking about value at these conferences how they are measured, and many will still have “savings” right at the top of their list.

So, our three thoughts for 2017 are about getting the message across. (And if you want more to consider now, our recent BravoSolution Real World Procurement session “Proving Your Procurement Value” does cover some of this ground in more detail).

- First of all, procurement must be very clear about the way we create value. A clear methodology for defining value wold be helpful here, but at a minimum, every organisation and CPO must understand the different sources and types of value that they create by spend category.

- Secondly, the profession generally and every individual procurement team needs to work hard to communicate this value to other stakeholders. And educating colleagues to make them more commercially aware (in our experience anyway) does not mean they start doing procurement themselves; it makes them more appreciative of what procurement is about and what procurement people do.

- Finally, measurement and reporting is key. And it is not easy; even measuring savings is fraught with issues as we’ve commented many times before, but reporting on how procurement has helped to drive revenue growth is not exactly simple! This is a challenge for all of us, and we will certainly be writing more about the topic, but we’d love to share more good practice and interesting ideas from anyone who has something interesting to contribute to the debate.

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