Nearly half of finance leaders claim that 20% or less of procurement savings wind up dropping to their companies’ bottom line, according to a new procurement study by global consulting firm Protiviti.
Amidst a business environment where monetary returns, business value and financial risk are under intense scrutiny, the survey report highlights a clear disconnect between corporate finance and procurement in the perceived value contributed by the procurement function to an organization’s profitability.
According to the survey findings, the perceived disconnect stems from the way procurement functions track and communicate savings, as well as how they collaborate with finance departments and work with the business to ensure these savings positively affect the bottom line.
Forty-one percent of those surveyed say that although procurement savings are being tracked (overall, less than half actually track absolute savings), the measurement and value are not being articulated across the organization. In addition, just over one in three view the working relationship between finance and procurement as collaborative, suggesting much room for improvement.
“Our research showed that most organizations need to work on savings-to-P&L traceability,” says Tony Abel, Protiviti managing director. “Fewer than half of procurement leaders rate their function as ‘very effective’ in reporting and promoting the savings it delivers. The views of finance leaders are significantly less positive still.”
However, of the 16% of procurement departments that are viewed internally by executives as profit centers, there are several common noteworthy characteristics, including:
- Utilizing spend analysis within budgeting and planning functions (85%).
- Using third-party tools to conduct spend analyses (55%).
- Tracking achieved savings generated by procurement (92%).
- Including cash flow and working capital as key elements of procurement savings goals (82%).
“Based on our analysis of the findings, a distinct set of traits emerge when comparing higher-performing procurement functions to lower-performing functions,” says Christopher Monk, managing director with Protiviti. “Procurement can drive visible value across their organizations by improving their spend analysis capabilities and tools; centralizing core activities; and including cash flow and working capital as part of overall savings goals, thereby turning negotiated savings into realized savings that impact the bottom line. An added benefit of putting these best practices into motion is to bolster procurement’s credibility throughout the enterprise.”