I recently met a fellow Procurement enthusiast named Bob Rudzki. Bob is President of Greybeard Advisors, author of “Straight to the Bottom Line,” and has an affiliation with SCMR. He was also formerly CPO at Bayer.

Bob offers procurement leaders a master class in how to secure C-level commitment to business practice change. Through speaking directly about EPS (earnings per share) and ROIC (return-on-invested-capital), Bob’s clients can make the case for change in a confident and complete manner.

Meeting Bob triggered this post and a few of my own thoughts around computing and presenting procurement project ROI and the broader project justification process.

It has been my experience that procurement projects general result in savings from 3 areas:

• Spending less
• Paying less
• Cutting overhead

Let me briefly explain each one:

• Spending less means stepping up enforcement on purchases & blocking a greater percentage of unnecessary purchases. It also means forcefully holding spending to targeted limits.
• Paying less means gaining better prices & then actually having people use these preferred contract prices vs. being a “maverick” and paying list price. Paying less also means adjusting payment terms and taking discounts more often.
• Cutting overhead means redeploying resources by “automating away” work.

But here is the trouble with all three: in making the case for ROI from procurement transformation, companies must acknowledge they are making mistakes today. And that is tough!

Who wants to say they are allowing unnecessary purchases through? Who wants to stand up and say budgets are just placeholders with no teeth? Who will say that the company is paying too much for the goods and services they are buying? And who wants to take the risk of re-deploying resources or cutting already thin resources?

It takes guts. And some clever positioning with C-level executives.

Those that choose to lead often find a way to position improvement efforts in terms that are less dramatic and focus less on past mistakes and more on the opportunity and potential impact. For example, let’s say you are looking at a 100K project that should return year 1 savings of 750K. well, going in for project approval claiming a 700+% return on investment through “spending less”, “paying less”, and “cutting overhead” might not work. But if in that same situation the procurement executive says instead that he can trim 3.75% off of a 20MM annual non-payroll spend the conversation comes across as far more credible & less of an indictment on the current status quo.

I wish you the best of luck in your endeavors to gain C-level commitment to your change initiatives. And consider using someone like Bob if you want to ensure commitment to your next project.