Measuring sourcing savings

Sourcing savings is the key KPI for any procurement function. However, as perceived by CFOs, half of the savings reported by procurement never reach the bottom line.
To tackle these challenges, Sievo developed Procurement Contribution to Financials©, a method to track procurement savings in a robust way.

Sievo procurement contribution to financial method

The concept of Procurement Contribution to Financials (PCF©) was born to fill a gap at the intersection of procurement and finance. Unlike sales, whose performance is measured by yearly turnover and turnover growth, procurement does not possess one universal formal method for measuring its contribution.

Sievo’s PCF© method was designed along 3 core principles:

  • Formal: readable in company’s financial statements
  • Universal: applicable independently from business structure
  • Fair: recognizes and rewards efforts

Adopting PCF© is participating in the advancement of procurement and ensuring ultimate recognition of what we do: delivering shareholder value.
Sievo’s PCF© method addresses – amongst other – the following savings measurement challenges:

  • Defining the correct baseline – and measurement for cases where there is no obvious base-line
  • Setting up measurement methods that align with financial view
  • Differentiating between cost avoidance and cost reduction
  • Isolating procurement contribution from external drivers, such as market price development and changes in currency rates
  • Applying measurement principles for (typically indirect) categories that lack good source data
  • Linking savings measurement with spend development
  • Measuring savings through their lifecycle – identified, approved/contracted, and bottom-line savings

Register to next our procurement savings masterclass webinar, where our experts provide decades of savings measurement expertise across industries and clients, simply sign up here and we will come back to you with date proposals.

 


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