Profit from Procurement

9SAVINGS REALIZATION: Stemming the Leaks

“I'm just trying to understand what happened to those Procurement savings.”

“Which ones?” said CPO, John.

“The damn $75m you promised me for this year, John. I can just about find $25m, but that's it! This is not what I needed at this point. I was counting on those savings, John.”

Sound like a familiar CFO to CPO conversation at year-end time? Yep. All too familiar, unfortunately.

This is clearly not a good outcome for anybody: the CFO doesn't get his / her savings, and the CPO loses all credibility. After all, savings are one of his or her most concrete deliverables, and the CFO would argue that what he / she has submitted is not valid. This dynamic often goes on for years, along with an inside joke about “Procurement savings.” Ultimately, all the good work of Procurement will come to nothing if the savings can't be found, or simply never materialize.

While technically much of the work associated with savings measurement and budgeting sits with Finance, clearly Procurement has a central part to play. It has to deliver real savings, it has to provide evidence of its existence, and it has to help ensure that the organization is compliant, and the savings are actually realized.

The importance of “savings” to Procurement cannot be underestimated. If sourcing is the engine room of Procurement, then savings are the lifeblood. And yet…people get it so wrong. So, let's take a look at what seems to make the topic of savings so difficult (it's ...