‘Finally, a tool that makes the value of Procurement tangible’

Properly validating and objectively determining the value of Procurement proves difficult in practice, Van Roosmalen acknowledges. There are several reasons for this. “Even when savings are recorded, this is often done in a fragmented way, in emails, Excel or Word files. It also usually remains limited to hard savings, such as a lower purchase price or a one-off discount. Moreover, results can sometimes be manipulated, because which baseline value do you use?”

He points out that Procurement also delivers various ‘soft savings’. “Such as improvements in quality or ESG aspects. But even a free training course can be quantified, or reducing internal administrative burdens through e-invoicing. Such criteria do need to be properly validated, so that both Finance and Procurement are clear on the starting points.”

Van Roosmalen wants to move away from discussions and senses this need among many of his colleagues. That is why he developed the Procurement Value Management application together with ISPnext. It has been added as an additional solution to ISPnext’s source-to-pay platform.

“At its core, it is a registration and reporting tool,” says Maarten de Ru, Director Product, Partner & Solution Consulting at ISPnext. “It brings together all Procurement initiatives, objectives and results in one central environment. It is a fantastic tool for making the value of procurement tangible. That goes beyond cost savings. It is also about risk reduction, sustainability and supplier performance.”

Procurement Value Management consists of five steps: (1) Configuration, (2) Setting goals, (3) Planning, (4) Logging and (5) Monitoring. “In the first step, together with Finance and the rest of the organisation, you determine what you are going to measure and how you are going to do that,” explains De Ru. “What do you count as value and which teams contribute to it? This is where you determine the criteria, for example that extending payment terms is valued at 1% per 30 days of payment deferral.”

After that, goals are set, at individual or team level, so that progress can be monitored. In the third phase, Procurement translates concrete, plannable actions with suppliers (events) into one or more outcomes. Buyers then record these results (logging).

“It is about providing evidence,” states Van Roosmalen. He also includes interim price increases in this. These are currently highly relevant for ERIKS due to the conflict around Iran. “Cost avoidance through negotiations should certainly be included as a result. If Procurement succeeds in reducing a general price increase from 10% to 8%, that translates directly into lower expenditure and therefore a better business result.”

The final step consists of monitoring, adjusting and reporting to the organisation. “Reports are a way of looking back, but also an instrument for looking ahead,” believes De Ru. “Procurement is shifting in this way from an operational role to a strategic position within the organisation.”

Reporting can be done per team or individual, but also per product, business unit or supplier. He advocates giving teams insight into each other’s results. “That increases their willingness to actually log results. It is simply motivating when your bar fills up a little further. This form of gamification works.”

Van Roosmalen sees this reflected in practice. “In the first months of this year, more than 500 events have been recorded with us. This ranges from bonus agreements to soft savings to matters such as cost avoidance. The first reaction from team members is naturally: ‘Do I have to do even more reporting?’. But once they start seeing the results, including each other’s, it provides an extra stimulus. The value of their work becomes visible.”

“This solution removes the discussion with Finance,” concludes De Ru. “Procurement can therefore focus on its added value. And collecting savings in Excel sheets is a thing of the past.”

This article was made possible in part by the trade magazine Deal!.