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How much does early procurement involvement save?

How much does early procurement involvement save?It seems like common sense that early procurement involvement leads to improved value, greater savings and more robust decisions. However, it’s still not the norm for the majority of organisations.

Would knowing how much early procurement involvement could save help organisations work more closely with procurement? How does the specific stage of procurement’s engagement affect those savings? And how can procurement quantify and justify its insistence that it be involved in high-spend projects at the earliest possible stage?

Leaving aside the potential for huge improvements in solutions’ fitness-for-purpose (and the consequential avoidance of ineffective solution costs), Spend Matters and the Institute for Supply Management investigated what these savings might equate to.

The business case for change

In the survey, 250 responses were analysed to look at the percentage savings they made, on average, during supplier negotiations. They were then asked what percentage they believed they would have achieved had procurement been involved before suppliers were chosen. Finally, they were asked what percentage they felt would have been possible if they had been engaged when requirements were being defined.

Findings showed a potential 2% savings difference between procurement being involved at the requirements stage rather than not being engaged until the negotiation stage. This represents a significant contribution to the bottom line just by allowing procurement to get a better view of the specific procurement event and contribute ideas on how to run the competition, define requirements and qualify suppliers.

How should procurement seek to get involved?

Investing in procurement’s early influence, as the survey’s author Pierre Mitchell points out, can’t simply be a matter of “hiring more people and expecting them to badger the business for a seat at the requirement definition table.”

Instead, the aim should be to reduce the administrative burden on senior employees and to streamline procurement processes to free up the potential for influence to be asserted. Setting benchmarks and monitoring them is also important.

The importance of internal communication

In presenting the business case for procurement’s earlier involvement – and accordingly the necessary increase in focus on spend visibility, tail management, e-sourcing solutions and knowledge of suitable suppliers – internal case studies can often carry more water than external industry stats. Real, visible savings across business functions are far more likely to stimulate interest in best practice.

To find out how next-generation eProcurement can embed good practice in a flexible, usable electronic process, contact Nextenders to arrange a demo or download our paper on the benefits of data-centric eProcurement.