3 commentaires

  1. Olaf de Hemmer Gudme

    Thanks Pierre for this constructive answer !
    You are right, value creation is one step further than savings … not always requested and more difficult to calculate. Should it be for the most mature purchasers ‘only’ ?
    I do not think so, if you use the definition of ‘value’ that is common to specialists for decades (‘value analysis’ was invented by a GE purchasing engineer … 70 years ago !) :
    Value(s) = need(s) satisfaction / cost(s)
    So reducing costs IS creating value, IF it does not reduce needs satisfaction !
    Any decent purchaser would not reduce cost to the point that users are not satisfied, or are they ?! My experience is that if you focus on cost, you end up going to LCC without checking quality and delays issues, or checking that your best offer supplier will be able to sustain for years, or discovering that their 2e rank suppliers do not act ethically …
    This is why I call for ‘creating value’ first ! When you focus first on the real users’ needs, you discover that the actual solution is very often not the best one, and may be simplified.
    For example, the ‘new’ users request for reduced environmental impact has opened to less packaging, less transportation, less energy … so less costs !

    Ok, calculating ‘savings’ seems easier than measuring ‘created value’. At least, money seems objective, as value is obviously subjective. Your article shows it is not really that simple for savings, when you come up with cost avoidance, total cost, cash, ROI … And measuring value could be easier than you think : evaluating users needs satisfaction is not so difficult : quality managers do this for decades also, no ?

    You are right, most people do not know how to do it :-/
    This is where ‘value methods and tools’ could help. I use them for 15 years. You should try 😉 Maybe I could help ?

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  2. Olaf, please allow me to reproduce here the answer I made to your comment on our blog 🙂
    ***

    Dear Olaf, first, thank you for taking the time to write such a comprehensive feedback !

    I have to concede the omission on the measurement of value and the focus on financial gains… My bad.

    I cannot disagree with any of the things you say: financial benefits (or « savings » or « cost reductions ») are not enough and can be misleading, even counterproductive sometimes (although stakeholders are usually able to prevent this from happening).

    And it seems we agree on the fact that Procurement cannot work on its own, without collaboration with/scrutiny from other functions.

    Back to savings.

    You may find this is a restricted view. But we have to admit one thing: if savings cannot be the sole way to measure the performance of a Procurement team, it is a necessary element.
    I’ve never seen a Procurement team able to justify its existence (=its cost) without bringing some cost reductions. This is true with other functions, e.g. marketing having to justify the ROI of their campaigns.

    I will actually go one step further. I think savings are a stepping stone.

    Focusing on quality, risk, innovation is what will deliver the most important and more sustainable value.
    But 1. not all procurement organisations (and companies) are wired or mature enough to do this, 2. this will not happen overnight.

    To reach this state of internal and external collaboration, the one that creates value, Procurement needs to earn their stripes, build the trust and position themselves as the most adequate function to lead this effort.

    This often starts by « showing the money ». Then you generate more savings AND mitigate some risks. Then you also bring new solutions…
    This is how you initiate a virtuous circle.
    This is how you become value-focused rather than cost-focused. It is a journey and in my opinion, it generally starts with savings.

    A more technical aspect: I’ve been challenged a lot on these topics, I’ve worked with prospects and clients on how to measure such value. We have never been able to find anything conclusive so far. Unfortunately.

    So I’m more than interested in taking part to your & Alain’s study and creating a more holistic view of Procurement performance. Count me in!

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