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Making procurement savings count

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Essentially industry benchmarks have been used to derive contracted savings which are then realized in the sourcing lifecycles of any sourcing projects. These savings can be termed and bucketized under "Sourcing Optimization". But the other side of the coin is the procurement savings which predominantly lies with the P2P technology implementation and compliances.

Whenever we use the word "Savings" in the sourcing and procurement world - 9 out of 10 times it is considered for sourcing savings -- what we typically achieve by managing various categories strategically. Essentially industry benchmarks have been used to derive contracted savings which are then realized in the sourcing lifecycles of any sourcing projects. These savings can be termed and bucketized under "Sourcing Optimization".

But the other side of the coin is the procurement savings which predominantly lies with the P2P technology implementation and compliances. Gone are those days when clients used to only talk about the sourcing savings as now even the procurement is being measured in terms of its "savings potential" and these savings are very critical. Clients expect that the P2P savings should also be put under risk or under a gain share kind of model.

The key levers to arrive Procurement savings can be bucketized in two major buckets which are: 

  • P2P channel optimization driven by technology enablement (procurement platform deployment, catalogue enablement)
  • Compliance and automation driven by stakeholder demand management, consolidating purchasing requests and intervals, reviewing stock levels, expanding current contracts, pricing compliance, goods receipt compliance, replacement strategies, supplier terms  invoice matching effectiveness and early payment discounts

However, we also need to be cognizant of one important fact that P2P channel takes payables also into account and overall P2P savings can only be realized and sustained when procurement and payables have a tight integration.

So when we achieve these P2P savings, these are not dropping in between due to any leakages, and gets realized during the entire P2P lifecycle.

Comments

Thanks Mayank for an interesting read.
Essentially with scenario shift, we need to also focus on levers other than sourcing savings, another example is TCO savings? How do you think business can leverage that?

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