Supply disruptions and the raising of procurement’s profile over the past two years has led to difficult questions around the meaning of value
“Savings are as useful a metric as how quickly you answered the phone”
Christian Martin, director of procurement, London School of Economics
“A horse, a horse, my kingdom for a horse! We have all heard this famous Shakespeare quote, but have we listened? Was Richard III interested in whether the horse was below the market average? Did he get three quotes for this horse?
Setting savings targets is as useful as knowing how many orders were processed that day or how quickly you answered the phone. Sure, it is a good metric to monitor on a dashboard that things are ticking over, but in isolation they are meaningless, and if used as the primary metric to define procurement’s value to the business… they result in pure misdirection.
There is no standard definition for what a saving is or which calculation trumps another. Is it a saving compared to the average bid cost, below the cost consultant estimate, under the pre-agreed budget or less than what was paid last time? (In a world of over-inflated prices, good luck with that.)
Maybe just getting stuff when you actually need it is far more valuable, as Richard III would attest if he was willing to pay the price of his kingdom for that horse. Doesn’t that put it into perspective? Could getting stuff be more important if failure to do so means production would stop? Or if having a service in place at short notice meant being able to open for business?
There is a lot of talk about procurement being given a seat at the table and not enough about what you are doing to help the business. Nobody gets noticed for following the rules to the letter. Why was your contribution good today? How was your involvement game-changing to the ultimate customer? Who said it was the right thing to buy? How do we know? What are our competitors buying?
Procurement is one of those lucky professions where we can actually make a difference, and we don’t do that by buying the same thing for a little bit less than last time.”
“Targets are necessary to ensure suppliers are challenged on costs”
Nic Porter, managing director, Procuring Group
“Procurement savings targets have long been used by departments to attempt to address and control spend with their third party suppliers. With increasing cost pressures across supply chains today, savings targets should continue to be on the agenda of procurement departments to ensure third party suppliers are being appropriately challenged on costs and their value-for-money offering.
However, in light of the challenging supply chain conditions over the past 18 months, organisations are having to balance their desire to achieve savings against ensuring supply chain transparency, security and sustainability as they endeavour to manage their exposure to supply chain risk.
Targets should be just one subset of how procurement is measured – one part of an overall measurement culture that evaluates other important criteria such as user experience with procurement, alongside supplier performance management and supplier metrics around environmental, social and governance activities.
Savings targets should be carefully considered and agreed in collaboration with budget holders, finance and other stakeholders to obtain buy-in and ensure ownership for delivery does not sit solely with procurement.
There should be a clearly defined and consistent methodology for measuring delivery of savings against targets. These should be agreed across the organisation and applied rigorously – a collective target across the department, rather than at an individual buyer level, and individuals should not be solely rewarded for their delivery against them.
They should not act as an incentive to deliver savings at the expense of everything else. While savings are important, a holistic approach is required to ensure what is gained in a saving is not lost through poor performance elsewhere.”
