Guide

Four ways to maximize your procurement savings

Words: Alex Klein

Maximizing realized savings is all about diligent execution, good measurement, and cross-functional alignment.

Your Procurement function’s reputation and credibility can live or die based on the validity of your proclaimed savings, so it’s paramount that you get it right.

Good procurement, and nailing down those savings before they blow away, is about what happens after the deal is signed. Remember the old adage about leading the horse to water? Processes need to change and finance staffs need to be on the ball.

Good procurement, and nailing down those savings before they blow away, is about what happens after the deal is signed.

Follow these four recommendations to optimize the chance of your savings forecast matching what is found in the P&L at the end of the year.

  1. Get your savings calculation/business case right, by making sure it is based on granular volume and pricing data, and makes reasonable assumptions.
  2. Ensure the supplier contract gets implemented properly, and that all divisions/business units are aware of the new contract and how to buy from it.
  3. Make sure someone is accountable for measuring and managing vendor, item and price compliance – without this, you will fail. Engage Finance early, and ideally have them take the savings out of budgets up front.
  4. Be sure to measure both budget savings and operational savings – stripping out any extraneous factors such as business-driven volume or mix changes.

The key to getting it right is being proactive. If you wait until your CFO asks, “Where are those savings you promised me?”, then it will likely already be too late.