3 Ways the Value of Procurement Can Be Quantified

The value of procurement is often measured by savings and coverage, but procurement professionals may be limiting themselves. GEP explores procurement’s other value propositions in its whitepaper on procurement transformation.

Speed to market, risk management and sustainability are some key value propositions that procurement has to offer. Despite their importance, their value is not measured nearly enough. Because these measurements can effectively communicate the value of procurement organizations, they should not be neglected. How can you go about measuring these values?

Quantifying Value Propositions

Speed to Market

Bringing a new product to market months earlier than originally planned can create significant additional revenue. Procurement organizations are able to speed up the production timeframe using the following methods:

• Create crystal-clear specifications for your product, and effectively communicate them.
• Form a commercial agreement with suppliers that offers incentives for speedy delivery.
• Have alternative sources of supply.

If supplies are received more quickly and expectations clearly communicated, production is able to move more quickly, which shortens the timeframe to bring your product to market. The earlier the release, the earlier revenue can begin to accumulate. The money earned by the additional months of revenue is the value added by procurement

Risk Management

Third-party risk will always exist, but that doesn’t mean risk can’t be managed. Procurement’s hand in risk management:

• Establish multiple sources of supply.
• Manage inventory.

The total cost of risk considers retained losses, loss adjustment costs, risk control costs, transfer costs, and administrative costs. Understand the cost of different types of risk and the costs to control and minimize it. Value can be communicated by comparing the monetary risk reduced with the costs to lower this risk.

Sustainability

Sustainability is beneficial both ethically and financially. Some financial benefits are very direct, reducing packaging, for example. Others are intangible, like the reputation of your brand. Procurement professionals can do their part by:

• Ensuring suppliers comply with labor regulations, including child labor, work conditions, etc.
• Reducing CO₂ impact from the supply chain.
• Recycling waste.

There are specialized firms with the ability to track and measure the impact of your sustainability. Value can both be communicated by the sustainability metrics and the financial gain of less packaging and a greater brand image.

Understand Your Metrics

Measuring additional value propositions allows your procurement business to effectively communicate the reach of your value. It also allows your business to quantify its progress and assess areas for improvement. Value metrics go beyond savings. Additional metrics improve your business inside and out.