Where’s the money? – Marisa Menezes launches The Faculty’s Making it Stick research at the 2015 CIPS Australasia Conference.
Consider this – you’re a successful CPO with a world-class Procurement team that’s brilliant at negotiating great savings and other value. Six months ago you successfully identified and negotiated contractual benefits worth millions with a critically-important supplier – at the time, there were plenty of high-fives and back-slapping amongst the team as you signed the contract and handed it over to the business owners… but fast-forward six months to the end of the financial year, and your glowering CFO calls you into his or her office to ask those three dreaded words – where’s the money?
Marisa Menezes, GM of The Faculty Management Consultants, has made the assembled procurement professionals at CISPA 2015 very uncomfortable. She’s describing a nightmare situation that has kept many a CPO awake at night – millions of dollars in identified value won by procurement failing to make its way to the bottom line, a despairing CPO and a furious CFO. The potential consequences of poor benefits realisation are frightening – apart from the obvious anguish of seeing savings going down the drain, it damages the procurement function’s credibility. Strategically-vital supplier relationships also suffer, as maverick spend damages vendors’ margins and restricts the purchasing organisation’s ability to negotiate future contracts in good faith.
But it’s not all bad news – The Faculty has a solution for Making it Stick.
Earlier this year, The Faculty Roundtable commissioned an investigation into best-practice benefits realisation, and our researchers have conducted a series of interviews and data analysis to unearth the factors that prevent Procurement’s savings from hitting the bottom line. The results were boiled down to five key hurdles to Making savings Stick, namely:
- A lack of enterprise-wide ownership and alignment with Procurement’s targets;
- Silo-style working environments rather than true cross-functional collaboration,
- Maverick spend and other non-compliance that undermines Procurement’s gains and damages supplier relationships
- Unclear benefits definitions, measurements and validation processes that haven’t been agreed upon across the organisation, and
- An immature cost-conscious culture that hamstrings CPO-level efforts to expand the value Procurement contributes to the organisation.
No wonder CPOs are having trouble sleeping at night – as much as 50 per cent of contracted savings are not making their way to the bottom line of Australia’s leading companies, which is equal to $138.5 million dollars across the 16 major organisations that participated in this research. Overseas, the figures are even more disheartening: a report by Aberdeen Group in 2011 revealed an industry average of only 8 per cent, an incredibly low figure.
The Faculty’s Making it Stick research a call to action for CEOs and CFO to support their Procurement functions to dramatically improve benefits realisation. It requires no less than an organisation-wide change management program to drive the right behaviours around compliance and cross-functional collaboration, and this must be driven from the C-level if organisations intend to fully realise the benefits of their supplier relationships.
Marisa takes the audience through six different “levers” a CPO can pull to drive savings all the way to the bottom line:
- Prove it – moving the Procurement team’s focus from projected to validated savings
- Drive cross-functional collaboration, focusing on shared goals and language
- Expand the focus beyond costs – only possible once a cost-conscious culture is in place
- Align to business targets – without alignment, CPOs risk having their hard-won benefits dismissed as irrelevant
- Build rigorous benefits definitions, measurement and agreed-upon validation methodologies
- Focus on compliance – without a culture that values compliance, nothing will stick.
The Faculty’s Making it Stick report is now available for free to download. Armed with this call to action, CPOs have the tools they need to drive meaningful change, make savings stick, and sleep better at night.