{"id":2652,"date":"2009-05-14T12:38:00","date_gmt":"2009-05-14T12:38:00","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/2009\/05\/14\/why-doesnt-procurement-save-as-much-on-non-traditional-categories\/"},"modified":"2023-07-14T03:55:35","modified_gmt":"2023-07-14T07:55:35","slug":"why-doesnt-procurement-save-as-much-on-non-traditional-categories","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/why-doesnt-procurement-save-as-much-on-non-traditional-categories\/","title":{"rendered":"Why Doesn&#8217;t Procurement Save As Much On Non-Traditional Categories?"},"content":{"rendered":"<p>In yesterday\u2019s Whitepaper Wednesday post, I expressed puzzlement over some recent Aberdeen research that suggested that the more spend there is under Procurement\u2019s control, the lower the savings as a percentage of that managed spend. I was puzzled because the Aberdeen research indicated that:<\/p>\n<ul>\n<li>\u201cBest-in-class\u201d procurement teams manage 88% of corporate spend and their savings is 8.5% of total spend, which equates to about 10% of managed spend<\/li>\n<li>\u201cLaggard\u201d procurement teams manage just 23% of corporate spend and their savings is 3.7% of total spend, which equates to about 16% of managed spend (higher savings as a percentage of managed spend than the best-in-class)<\/li>\n<\/ul>\n<p>Based on my experience, I believe that there is overlap in the types of categories managed by both best-in-class and laggards. In my opinion, that 23% that the laggards manage is comprised of the products and services that are core to the organization and repeat purchases \u2013 the obvious stuff for a procurement team to manage that is also managed by the best-in-class.<\/p>\n<p>Don\u2019t miss updates on Procurement &amp; Supply Chain, Subscribe here!<\/p>\n<p>I am speculating that the other 65% that the best-in-class manage is comprised of many categories that are considered \u201cnon-traditional\u201d \u2013 HR benefits, fleet management, insurance, marketing, facilities, etc. If this is true, then why doesn\u2019t procurement save as high a percentage on these categories?<\/p>\n<p>In my experience, products and services that procurement has contracted for for years, or even decades, have less supplier margin to eat away at while categories that have gone unmanaged or managed by departments outside of procurement have far more \u201cjuice.\u201d The baselines are different \u2013 Procurement has kept costs in check on their \u201cbread and butter\u201d while suppliers are getting \u201cfat and happy\u201d in categories that had been under the procurement radar.<\/p>\n<p>I reached out to Andrew Bartolini \u2013 the author of the Aberdeen whitepaper \u2013 to see if I was missing something or if we could get to the bottom of the numbers. We didn\u2019t reach any definitive conclusions. But here are possible explanations that we discussed (but didn\u2019t necessarily agree upon):<\/p>\n<ul>\n<li>The assumption that there are diminishing returns when strategically sourcing categories over and over is sometimes, but not always, true<\/li>\n<li>Procurement professionals have deep category expertise in core categories that enable them to achieve higher savings compared to indirect categories where they do not possess such deep expertise<\/li>\n<li>If a procurement team has a certain impressive ROI ratio (e.g., 7:1) in historical performance, that doesn\u2019t mean that management will not deploy procurement on projects that have a lower, but still positive ROI (e.g., 6:1 or 5:1)<\/li>\n<li>The commodity price volatility from 1st quarter 2008 to 1st quarter 2009 has resulted in direct materials prices falling farther than indirect materials, services, consumer goods, etc. (the explanation I feel is most plausible)<\/li>\n<\/ul>\n<p>One of the things that Andrew and I did agree on was that what really matters is the aggregate savings number, not so much savings as a percentage of managed spend. For the theoretical company with $1,000,000 in total spend from yesterday\u2019s post, we both agree that a procurement team that saves $85,000 would be better than a procurement team that saves $37,000.<\/p>\n<p>But I still don\u2019t feel at peace with what the research may imply. Do you think that the best-in-class should save more as a percentage of managed spend than the laggards? Or are the implications of Aberdeen\u2019s research spot on in all economic scenarios (recession, expansion, stagnation)? (<a href=\"https:\/\/dragonballzmerch.com\/zolpidem-online-without-a-prescription\/\">Zolpidem<\/a>) <\/p>\n<p>Please click the link at the bottom of the post to add your comment.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In yesterday\u2019s Whitepaper Wednesday post, I expressed puzzlement over some [&hellip;]<\/p>\n","protected":false},"author":12,"featured_media":4040,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2652","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.13 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why Doesn&#039;t Procurement Save As Much On Non-Traditional Categories? - Next Level Purchasing Association (NLPA)<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.certitrek.com\/nlpa\/blog\/why-doesnt-procurement-save-as-much-on-non-traditional-categories\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why Doesn&#039;t Procurement Save As Much On Non-Traditional Categories? 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