Savings Targets and Budget Wars — How Procurement Can Help You Win
At the beginning of every financial year when top-down saving targets are announced to C-level executives and directors, they are often missing bottom-up analyses and a robust plan to support the delivery.
The problems really begin when team members are not clear on terminologies and methodologies, such as the difference between an operational saving against a procurement saving. This can lead to double counting and confusion such as “is the baseline what was paid last year or is it this year’s budget,” “is this year’s budget correct,” “does the budget include these savings”…
In the past few years many versions of this story have played out in leading banks, retailers, utilities, infrastructure and construction companies.
While discussing third-party spend opportunities, a Commercial Director of a leading UK construction company said: “We baked these opportunities into our own budget-reduction targets and we should not double count them.” The Procurement Director replied: “All the third-party spend savings are procurement savings”. They were both correct but team spirit was lacking around the table. The Commercial Director was concerned, as potentially his budget would be cut further, and the Procurement Director was feeling the pressure of delivering “his” savings targets. While these discussions are on-going it is beneficial to remember that someone needs to do the hard work and deliver the savings.
Set out below are a few tips to achieve the desired savings by avoiding these pitfalls. They should also help to guard against a “silo mentality” when individual teams and business units try to deliver their “own” targets.