Demystify #PROCUREMENT A 3% REDUCTION IN SPEND brings the same increase in OPERATING INCOME as a 21% INCREASE IN SALES. This is why you have a procurement department, and this is why a little focus on your procurement will generate huge benefits. Of course, supply chain resilience, digitalisation and agile procurement are important and need to be addressed but let's not forget why we exist: saving 3% in procurement, will not require restructuring or discussions with the unions; it will not require investing in extra production capacity, it will not require a marketing and sales plan to take market share. But saving 3% in procurement could increase your operating income by 42%: the same as increasing your sales by 21%. What is the simplest to achieve? You can of course adjust this crude model with your own numbers. It might not be a 42% increase in operating income for you but I think you will be surprised….
Martin Boyle
3y
This one reason why the annual IT spend (representing between 2% and 15% of revenue) is always in question. Hence, many proactive organisations benchmark IT spend against best in class organisations to stay focused on maintaining a lean, effective and high value digital service. Furthermore, a credible IT Benchmark report can help the CIO defend against arbitrary cuts from less-informed senior management where such cuts can disrupt both day to day digital services and essential IT projects (eg mandatory upgrades).
Jay Bartels
3y
Thanks for posting Olivier!
I completely agree with Chris Patfield, it doesn't flow as simply for 2nd generation services. However, it is absolutely the right way to ensure that the contribution of the procurement function is understood in a language that the rest of business can meaningfully quantify.
My interest would be in sustainable savings that are built around working with suppliers to improve what they do and for those savings to pass through on a permanent basis. The problem with a lot of procurement is that it is short term savings taking advantage of a pliant market at any given time.
Trent Bonnell, Alain Vourch, Adi Zukerman, Christopher H. Roland Verdon , Emmanuel Bonnaud This might be very relevant for Portcos.
Hi Olivier Durand; must say the % have changed from when I first started out in procurement but the rationale remains the same. However a note of caution - first generation outsourcing of services will incur restructuring and union discussions :-)
Project Manager and Signage Engineering Design Specialist
3yInteresting! I like but to conclude, never compromise on quality to achieve those benefits...it will backfire at some stage and cost more in the long term.