The Procurement Savings Challenge

Each year the CFO lays down the challenge to the CPO to deliver savings. Most procurement professionals are aware that any savings generated have a direct impact on the bottom line (EBITDA).

So imagine the following scenario…

At the beginning of the financial year, the target for savings has been set and agreed with the CPO. Procurement work hard, engage key stakeholders throughout, put themselves in the firing line and deliver the results. Really, what results? Bonuses rest on this yet, the CPO is told at the end of the financial year, we can’t accept your figures. Why? “These are not real savings” says the CFO. Show me some “real” savings! “Please elaborate on this” says the CPO. Does this sound all too familiar?What has gone wrong? More and more organisations are moving away from theoretical savings. Yes they want real crystallised savings! Compliance is a word that comes to mind. This however raises a number of questions. 1. Do you agree with the above line of reasoning? 2. Is compliance the responsibility of procurement? 3. Who else has an important role to play in achieving crystallised savings? 4. How should a procurement professional be measured? 5. Unfortunately, it always comes down to the last dollar? Do you agree with this approach? 6. If you were the CFO, how would you define savings? 7. Does the current approach motivate or deflate morale?