Cost Cutting Is Procurement’s Top Priority, but Savings Miss Mark

Organizations need to move beyond marginal cost reductions in 2014 to meet business expectations

ChicagoFeb. 13, 2014—While delivering savings remains the top procurement priority for most organizations, only 20 percent of companies substantially cut costs in 2013, according to a new survey of 545 procurement executives by the Institute for Supply Management (ISM) and BravoSolution. In fact, most procurement executives are expecting that the total amount they saved in 2013 doesn’t meet business expectations:

  • 60 percent expect to deliver 10 percent or less in savings.
  • 20 percent estimate 11 to 20 percent in reductions.

“Delivering marginal savings should be a trigger for procurement teams to take a step back and assess what’s working well, what isn’t and how the function can improve,” said Mickey North Rizza, vice president of strategic services at BravoSolution, a strategic sourcing company. “If savings aren’t driving the business forward, procurement needs to find new and more meaningful ways of impacting the business.”

Despite the lackluster results, most procurement executives suffer from severe tunnel vision around cost containment and savings: Only 30 percent of respondents cited growing revenue and profit margins as a top priority, with the rest continuing to ignore key financial metrics, including earnings-per-share, return on assets, return on invested capital and operating margin.

“It’s time for organizations to realign their procurement and sourcing priorities, and focus on what matters most to the business: driving revenue and increasing valuation,” said North Rizza.

However, several critical components needed for an organizational re-alignment on financial growth are missing: procurement transformation (23 percent), bringing more spend under management (19 percent), and supplier collaboration and innovation (19 percent) all ranked low on the priority list, according to the survey.

“If procurement teams want to evolve in 2014, they need to understand where they are today. That means asking internal and external stakeholders tough questions and embracing that feedback—even if it isn’t what they want to hear,” said North Rizza. “Businesses that are investing in procurement’s transformation today will feel the positive impact in this year and in 2015.”

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