- Paul Hobin
Heresy: Cost Savings Just Don't Matter
Updated: May 23
Do cost savings produce the recognition, reward and respect that procurement seeks?Photo by Jirsak/shutterstock.com
The premise of this article: Procurement success is often defined in terms of cost savings achieved. The “C” level we report to defines it that way and we define ourselves that way. Yet even when savings are substantial, and sometimes critical to institutional survival, our glory seems fleeting and readily forgotten. That’s because cost savings, though internally important, are forgettable. They play no part in how companies or their customers define the company and therefore they don’t matter in the big picture. What does matter that we should shift more focus to? Fundamental contribution to what does define the company – its products and services.
What were your cost savings in 2007? You probably have no idea. Neither does your manager or your CFO. Your company’s customers certainly could care less. They cared less in 2007, let alone now.
Does Apple celebrate the year 2007 for the cost savings reported by their procurement departments, or for the introduction of the first iPhone? I am positive that Apple is as ambivalent about their 2007 cost savings as you and I are, but they’ll never forget the first iPhone release.
This is the problem. Cost savings are not fundamental to what ANY company does. In the big picture, the long view, cost savings just…don’t…matter. As the real accomplishments of the company and its employees live on, cost savings are quickly forgotten.
I’m not saying cost savings aren’t fundamental to the procurement mission. They are fundamental, but like eating is fundamental to life. Nobody describes their goal in life, their destiny, by saying, “I’m here to consume food.” Nobody’s gravestone says, “He ate a lot.” In the same way, I doubt anyone in procurement truly defines their contribution as, “I’m going to save $x by the time I retire and I can die happy.”
Cost savings are not enough. They’re not enough for our company’s customers, who don’t care about them in the first place. They’re not enough for the executive level that procurement reports to, which will have forgotten the accomplishment, no matter how large, a year or two down the road. And they’re really not enough for us either. I wouldn’t even call them a tactic – they’re a function, like running competitions.
If cost savings aren’t the highest calling of procurement then what is? I think the answer is simple and obvious: original, fundamental contributions to the company’s products and services.
Procurement has been talking about being a leading partner on corporate objectives for decades but I suspect the bulk of procurement leaders would say they’re nowhere close to achieving that stature in their companies.
So is this whole discussion just theory? If even the CPOs aren’t achieving the goal of fundamental contribution, can anyone?
Yes! I did as a relatively junior buyer with three years total procurement experience. Every buyer has a shot at fundamental contributions because they come in every size, shape and value. CPOs are looking to change procurement's role across the enterprise, a monumental challenge. But fundamental does not have to mean monumental.
Making fundamental contributions is often linked to an aspect of Client Relationship Management that I call “Active Involvement”. In my CRM article I talk about “getting in the trenches” with clients. Inhabiting their world, not just understanding but sharing their issues, concerns, worries and fears. Living it. Literally getting your hands dirty.
I was given the portfolio for a hostile client, corporate and marketing communications, and immediately dove into their world. On the first day our annual report went to press I was in the printing plant at 8:00 a.m. for the first press check. I didn’t know it at the time but the marketing staff was impressed. No buyer had ever shown that level of interest in their field. I struck up close relationships with our print reps, displaying a genuine and intense interest in their business and learning the intricacies of printing mechanics.
A year later I was preparing an RFQ for a straightforward printing job and I realized the specifications made no technical sense. It was a small marketing periodical predominantly printed in black and white to save money. Knowing the specifications of the presses being used I could see there was no economical way to print the combination of color and black and white being used and I "discovered" that the entire periodical could be converted to color with zero additional press cost.
The printer hadn’t mentioned this to anyone at my company because they knew the communications staff were consummate professionals and assumed we knew. But the staff were marketing and artistic professionals, not press mechanics professionals. They had no idea.
Procurement sometimes gets this kind of unique view on the client’s operations, a view that despite their professionalism the client themselves may not have the opportunity, inclination or the idea to pursue. Procurement – even in the guise of a junior or mid-level buyer – can make a fundamental contribution using its unique vantage point.
That’s what gets remembered; that’s what lasts. A couple of years later I moved on to more complex areas of procurement that demanded the attention of my expanded skills. The director of marketing communications emailed my manager with thanks for my delivery of “a new level of service excellence…developing an in-depth understanding of our many diverse communications processes and needs [and]…contributing numerous valuable and innovative ideas for maintaining or improving quality while reducing costs” in addition to numerous other complements.
I’ll deliver cost savings whenever possible because they’re an important procurement KPI. It’s nourishment that keeps procurement alive. But it’s not the goal of my procurement career. It shouldn’t be your only goal either. Think bigger. There’s a world of fundamental contribution awaiting your discovery.