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World Procurement Congress: Tom Seal and the Savings Paradox.

Cost and Cash ManagementBenchmarking-Blog

The current keynote speaker at the World Procurement Congress is Tom Seal, Head of Research at Procurement Leaders. Following from Eva Wimmer’s lead, Seal takes a skeptical look at savings.

 

In a study that Procurement Leaders conducted, Seal finds that percentage savings achieved tends to be the same across organisations almost irrespective of their industry sector or level of maturity.

 

It seems that most procurement professionals have a similar targeted savings number. In repeated surveys, Procurement Leaders has found that most CPOs have about 6-7% in mind when it comes to target. This figure seems to be the same across different industry sectors and levels of maturity.

 

Yet there are two facts that complicate the picture:

 

One, the price of commodities and other input goods have seen decades of rising inflation. In a 2012 survey, Procurement Leaders records an anticipated inflation rate of 4% in 2013.

 

Another point worth considering is that CPOs’ forecast that their organisations will see increased revenues this year. But all companies are suppliers. If companies are cutting costs in their supply base, then aren’t their clients doing the same?

 

Given the two above points, how is procurement achieving 7% rate every year?

 

Seal believes that the reason for this is CPO’s set the savings targets in advance, and work out how they will implement afterwards. If so, are we missing potential opportunity to front-load more savings?

Jonathan Webb
Posted by Jonathan Webb