By Glenn White, Procurement Strategist, CSS International, Inc.
To succeed in today’s global economy, enterprises find they must be fiercely lean, focused on the bottom line—and companies that enhance their sourcing and procurement processes contribute directly and significantly to competitive advantage by enhancing bottom line with measurable results. One key metric to monitor in this quest is return on investment (ROI), which assesses the value of the procurement department’s work and the degree of its successes within the company.
Baseline Procurement Expenses
As part of a company’s continuous improvement program for sourcing and procurement, it’s crucial to get baseline figures on procurement and spend costs. Which executives and employees should have their entire salaries considered a procurement cost? Which ones should have part of their salaries calculated into these costs? What percentage? How should benefit costs be factored in? Office space? What other expenses? Also, when creating a total procurement expense figure, be crystal clear on the timeframe used for this calculation: calendar year or fiscal? Once you have this baseline figure (procurement costs, annualized), you’ll then be able to divide the year’s cost savings by that number to calculate procurement ROI.
Set goals for improved sourcing and procurement processes, both quantitative and qualitative. For the first, what cost reductions do you want to see in year one? Year five? Ten? What level of improved contract compliance? What else?
Qualitative benefits can include risk mitigation successes, plus those in proactive supplier management, employee satisfaction, supplier relationships, and manual process elimination. What surveys, studies, and analytics data will help you to quantify your qualitative goals?
Clear Spend Visibility
Once baseline ROI figures are determined and goals set, what’s most crucial is clear visibility into people and processes, from suppliers to spend, along with transparent analytics and management throughout the entire sourcing and procurement chain. Instant and automated visibility is needed into what liabilities are created, when, and to where these expenses are allocated. This allows enterprise teams to monitor spending, flag overspending and much more in real time.
Value of the Cloud
Use of the Cloud in procurement is steadily accelerating because of its speed to value and TCO—total cost of ownership. Benefits of the Cloud include low upfront costs, faster time to results, and best-practice capabilities not found in on-premise or manual systems. This readily available access to real-time data in the Cloud allows procurement officers to make a business case for their department’s value and for their strategies to guarantee ROI. With a solid procurement business case in place, enterprises can gain executive team support along with funding and resource allocation for sourcing and procurement tools enhancements.
SureSaver™ Option for Oracle Procurement Cloud
This application, a Best of Breed automated procurement supply chain solution, gives enterprises an average 18 percent addressable spend cost reduction while delivering 99 percent contract compliance. Following best practices, SureSaver™ process identifies savings exceeding your Cloud subscription and deployment costs, often achieving that in three to six months. As an example, a five-year Cloud subscription at $500,000.00 annual recurring cost and the deployment fee of $500,000, SureSaver™ users identified more than $3 million in savings, achieving their desired ROI.
With CSS’s SureSaver™, enterprises benefit from project profitability with identified ROI savings in advance or in conjunction with deployment SOW.