Purchase to Payoff – Bringing Home the Bacon

Purchase to Payoff – Bringing Home the Bacon

Posted by Pete Loughlin in Benchmarking, Insights, Purchase to Pay 16 Apr 2010

Purchase to Pay, P2P and Dynamic DiscountingImagine this conversation between two fishermen:

“How many fish did you catch?”
“I saw 4 huge fish.”
“But how many did you catch?”
“I caught 2 but I saw 4.”
“You mean you caught 2 fish?”

“OK – I caught 2 fish.”

Does it remind you of anything?

We’ve espoused before the need to ensure that strategic sourcing savings are crystalized for them to have any meaning. (See P2P Compliance is a Critical Component of Risk Management.)  A saving promised and not delivered is not a saving. Seeing a fish is not the same as catching a fish.

Delivering actual, tangible savings to the balance sheet as opposed to claiming theoretical benefits is what separates the men from the boys in purchasing.

New Aberdeen research confirms that there remains a problem in crystalizing strategic sourcing savings. One of the major findings culled from their new study is that savings leakage is still a major concern amongst enterprises in 2010. The new Strategic Sourcing benchmark finds that enterprises, on average, lose 2.2% of their cost savings due to savings leakage.

2.2% leakage is a percentage of spend. Put another way, there is an unnecessary overspend of 2.2%. But Aberdeen understated the issue. They say taht while enterprises are able to achieve, on average, 5.4% cost savings at the end of a sourcing project, only 3.2% of that figure is actually implemented / realized and booked.

Strategic Sourcing Savings Realization Leakage

This is valid of course but look at this another way:

Strategic Sourcing Saving Realization Leakage

Of the savings identified by strategic sourcing projects, on average nearly half (41%) of the money is left on the table. If that sort of figure was reflected in sales – “We sold $1m worth but only collected $590K of the cash”- the sales manager would be shot.

You’re only as good as the savings that are realized. Strategic sourcing projects find the savings but it is well implemented and effectively mandated Purchase to Pay processes that delivers the payoff.

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