Analysis: How Procurement Teams Demonstrate ROI. First Part

As 2015 begins, many organizations are assessing how well they achieved their 2014 goals, preparing the best ways to communicate that success in terms of ROI for the company, and setting goals for 2015. According to an Iasta Efficio survey conducted in April of 2014, the top two priorities for procurement teams in the 2014-2016 timeframe are:

  1. Increase the rate of cost savings (identified and realized)
  2. Drive wider operational efficiencies through procurement

Procurement-Teams-Demonstrate-ROI

Top Priority: Determining your rate of cost savings

Demonstrating the rate of cost savings may be an obvious metric, but just because it’s obvious, doesn’t mean it’s easy. The same Iasta Efficio survey revealed the following challenges in tracking and analyzing spend data:

  • Poor quality of spend data from internal systems
  • Labor intensive process of managing and collecting data
  • Inability to identify and forecast savings opportunities
  • Pressure to put more spend under management
  • Inability to identify and prioritize top spend areas
  • Inability to forecast contract expirations

The bottom line is, if you don’t have a spend analysis solution with strong savings-tracking reporting and analysis in place, it is very difficult to provide critical savings numbers and show savings trends over time. These are invaluable pieces of data for your organization and the company as a whole. If you don’t have a system in place now, consider getting one in place as a major goal for 2015. It will make your life a year from now easier! The ability to easily and reliably report savings in 2016 will provide evidence to support your team’s value to the business. Now is the time to get approval and executive level support, because you can use it as a tool for setting and achieving goals to improve monitoring and streamlining of savings in the coming year.

Savings is always going to be a top priority because of its obvious link to profit, but in some ways I think the second-highest priority is the more interesting one. As a goal, “Driving wider operational efficiencies” is less directly connected to the bottom line and it’s certainly not talked about as much as savings, but I think it may better represent the larger, more strategic value that procurement teams can offer the company. It approaches procurement as a core skill that is deeply connected to supplier management and contract management. Be sure to check in for the next post where we’ll go into more detail about how procurement teams operate in those spheres. In the meantime, we would love to hear about the top priorities of your procurement team in 2015 and how it’s different from previous years.

(Source: http://www.esourcingforum.com/archives/2015/01/30/analysis-how-procurement-teams-demonstrate-roi/)