With compliance now in place at most organisations and the ability to continually deliver incremental cost savings dwindling, business leaders in our organisations want to know ‘what is next?’ How will the procurement function continue to support the success of the business into the future?
It’s true that measuring value beyond savings is not as simple as reporting cost savings. This is down to one clear fact. Value means different things to different organisations.
Measuring value beyond savings is about linking procurement and supplier activity towards the achievement of outcomes that directly impact organisational success and growth.
Through Supplier Collaboration and Innovation (SC&I) organisations can align and focus supplier activity to deliver against business opportunities and solve problems that lead directly to the growth of an organisation.
However, the question remains. How do we measure and report these successes back to the business?
At Old St Labs we look at value beyond savings through four distinct lenses
- Financial value
- Brand value
- Risk management
Today we’ll focus on delivering financial value beyond savings. I’ll dive into brand, risk, and alignment in more detail over the coming weeks.
The critical message to understand when discussing value beyond savings is that this is an exercise that moves procurement out of its silo by taking a business-led approach to delivering on opportunities and solving problems.
The background information that supports our thinking in this space is backed up by research and insight from McKinsey and the Institute for Supply Management. You can read more here.
Financial value beyond savings
The financial impact of Supplier Collaboration and Innovation can be divided into three areas.
1. Revenue growth
The big opportunity for the procurement function is to start delivering on top-line growth. By engaging and collaborating with suppliers more closely, new avenues for revenue generation are uncovered. Collaboration leads to the co-creation of new products and services that will boost sales or create new sources of income.
2. Cost optimisation
By establishing closer, more collaborative supplier relationships organisations can uncover innovative new approaches to work. This dedication to continuous improvement across the value chain has a far greater and more lasting impact on cost than traditional hard-nosed pricing negotiations.
3. Improved speed to market
It’s one thing to discover the next big idea; it’s another to activate and implement that innovation in a business. Close supplier engagements significantly increase the speed to commercialisation of externally sourced innovations.
Published October 2017.