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Re-evaluating Procurement Success: Looking Beyond Cost Savings

image of Ngaire Guzzetti Ngaire Guzzetti
Ngaire Guzzetti 18 Oct 2023 Time to read: 

In the realm of procurement and sourcing, the value of teams has traditionally been measured by the cost savings they achieve at the moment of contract signing. These savings are often subject to approval from the financial department, allowing them to be counted towards the team's cost-saving targets, as directed by the finance department.

Considerable time, effort, and resources are invested in crafting a flawless business case. It is often presented, revised, and presented again to the management board or even the board of directors. The business case meticulously outlines the proposal for implementing a service or purchasing a product, supported by the organisational values it aims to achieve. Financials are just one aspect considered; other value gains, such as improved governance or increased service level agreement (SLA) attainment, are also taken into account.

Once the business case is approved, the procurement team can proceed to the negotiation phase, which can also be resource-intensive. Based on the prevailing industry standards, procurement and sales, buyers and suppliers engage in a bid to secure the best outcome for their respective organizations. Negotiations go beyond mere cost and encompass the intricacies of relevant clauses, including liabilities, insurances, business continuity planning (BCP), and scope of work. We don't need to be reminded of what a standard contract should include or how to negotiate and implement the best contract. 

So, the contract is negotiated, signed, and executed. What happens next? 

Is the purpose of a contract solely to protect one party's interests against the other's? Should it be stashed away in a virtual drawer, never to see the light of day until one party wishes to explore the exit provisions? More often than not, this becomes the routine. Savings are logged, and attention swiftly turns to the next request for proposal (RFP).

This practice places an unrealistic level of trust in the business case being fully realised. Without continuous or occasional review, there is no assurance that the service or product approved in the business case aligns with what is actually delivered. Although the relationship may undergo monitoring through service levels and monthly service review meetings, this does not guarantee that the approved costs within the business case reflect the actual payments made. Therefore, it is essential to regularly reference and compare the business case with the invoices. If we genuinely wish to evaluate the success of procurement or the relationship, it seems prudent to reject the current methodology and instead assess the entire contract life cycle at its expiry.

Only by adopting this new approach can we truly assess the genuine success of procurement. 

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