Proving Value: Bridging the Gap between Identified and Realized Savings?

Proving Value: Bridging the Gap between Identified and Realized Savings?

A Q&A with Impendi’s CEO Nathan MacCarter:

Disappointment and unkept promises are a common theme heard in C-Suites on the backend of Sourcing and Procurement value capture initiatives. Whether it’s forecasted savings that under-delivered, or a delay to implementation due to a stagnant supplier negotiation, the space between promise made and promise kept can be a wide and costly one.

In today’s post, we sit down with Impendi’s Managing Partner and Co-Founder Nathan MacCarter and discuss the most common issues related to value leakage and how to prevent it.

Question: Why don’t companies realize savings that procurement team’s forecast?

Nathan: “In the space between promises and results there are typically two distinct problems. First, is a multi-faceted lack of organizational alignment. Second, is a general lack of preparation and infrastructure.

Let’s talk about alignment, and where misalignment with Executives, Business Stakeholders, and Finance Departments can be devastating to a procurement initiative.

It all starts at the top. Lack of executive support and buy-in is a prime contributor to leakage. Without top cover, initiatives are more likely hindered by the typical wall of roadblocks and obstacles they face. It’s leadership, not consultants, that pound on the table when things need to get done.

The next alignment factor is cross-functional support. Business Stakeholder buy-in is critical and many good procurement initiatives die early because cross functional support was missing or not properly engaged along the way. It is important that requirements are incorporated into procurement process and that are stakeholders are appropriately engaged during the vendor selection/negotiation process. This lack of alignment is often the cause of excessive internal debate that delay projects at the last tactical mile.

Last is the lack of alignment between procurement and Finance. This consistently ranks as one of the top reasons procurement leaders are replaced – CFOs can’t accurately observe the savings accrue to the P/L. On closer inspection, many companies actually do realize their savings, but procurement simply lacks the coordination with finance to track the results.

Now let’s talk about preparation and Infrastructure.

On the front end of procurement strategy, organizations are usually inattentive when it comes to implementation planning and supplier engagement. Whether it be conveying accurate scope and forecast, providing executive and tactical level contacts, or simply helping a new supplier get started, proactive planning that helps vendors put their best foot forward is a critical success factor. Procurement leaders that get this right are usually successful.

At the back end of procurement strategy, especially post implementation, there is often a lack of compliance accountability. Companies lack appropriate functionality and mechanism to track savings and identify issues as they inevitably occur. Sometimes even when everything else goes ‘right’, issues degrade or eliminate expected savings. Tracking those issues, and reacting as real-time as possible, is a big factor in post implementation value leakage. One approach that has worked well for Impendi clients is a concept we call ‘Hyper Care’ where, for a 3-6 month period after implementation of a new supplier, every purchase is tracked to identify variance to savings plan and resolve any issues. Some companies do it manually, the better ones utilize automated capabilities. The best companies not only have the capability to track savings and compliance, but also the discipline to proactively manage the issues they are monitoring.”

Question: What do organizations need to do to keep more of their hard-fought savings?

Nathan: “I’ll circle back to the primary problems I mentioned previously: lacking alignment, preparation, and infrastructure. Most of what an organization needs relates to managing these challenges.

On addressing alignment challenges…

Executive Support and Buy-in must be pragmatically built from the start. Organizations should assign executive sponsors to each individual procurement initiative from the outset. Company level procurement governance must also feed through this designated authority, which gives team members the chance to raise issues and ask for assistance when needed. Lastly, leadership should be regularly accountable for progress and the overall success of assigned initiative. Doing so requires leadership awareness of the appropriate details: Project Plans and Milestones, Savings Forecasts (and any changes), Actions for follow-up by owner should be tracked and transparent without being burdensome.

Cross Functional Support / Buy-in is also a must. Proactive procurement teams must align with each stakeholder group prior to launching procurement initiatives. This ensures cross-functional stakeholders, particularly those that own the business requirements, are engaged throughout the project. Lastly, implementation plans must be properly vetted and used to hold various stakeholders accountable to transparent milestones. These activities keep projects on time and help generate results as predicted.

In terms of capturing alignment with Finance, an aligned operating model is required to avoid results being lost in translation. Successful organizations dedicate one or more finance resources to procurement (typically FP&A). They also align on savings calculations methodology and translations to budgets.

Getting back to the importance of supplier preparations, and setting vendors up for success in upcoming negotiations, successful collaboration is done early and often. Detailed implementation plans are agreed upon by both suppliers and cross-functional teams. Key issues are collaboratively discussed and resolved in a timely manner, well before they throw timelines off kilter.

Lastly, there is the world of living with what you’ve negotiated. Having a savings tracking methodology after a new deal is implemented is important. It’s not the lack of issues that wins the game here, its the turnaround time responding and accountability to close things out. The best procurement organizations take this responsibility seriously and declare victory only when they observe savings start to accrue to the bottom line. They do things like requiring suppliers to send monthly reports with p x q detail that can be analyzed. They compare AP to spend analytics to identify compliance issues. They also have the technological capability and manpower bandwidth to do these compliance activities the right way, and at scale.”

Question: How does Impendi typically support customers through these challenges?

Nathan: “For the last decade, Impendi customers approach us from a variety of situations with the primary goal of generating savings. We support programs from early-stage opportunity assessments through complex, multi-year financial transformations. If I had to think of the most common threads of what customers need our help with, it’s two things: inertia and sustainability.

Whether it’s an understaffed or even non-existing procurement department, or it’s an organization where long-standing cost management programs have stagnated, our customers most often need our help making recommendations actionable and converting actions to dollars. Sometimes this means integrating and analyzing diverse data sets. Other times it means getting a vendor appropriately prepared for an upcoming negotiation. Regardless of the scope, our clients most often need our help putting momentum towards recommended action.

Beyond inertia, once a strategy is implemented, there is the desire for sustainability, especially in maintaining long term ability to manage value capture through procurement. I’ve already mentioned the importance of compliance discipline, but it’s so much more than a six-month reporting structure with a strategic vendor. Clients want to build and sustain value capture capability on their own. We help those clients do just that. They learn our category expertise, they learn how to design and run an Enterprise procurement org, and they are eventually armed with the tools, software, and analytics to actionably make it happen with their own people.

Not all Impendi clients are multi-year transformative partnerships, but our best ones are. These are the relationships and work we take the most pride in.”

Learn more about how Impendi can help your company ‘Find, Get and Keep’ more savings.

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