More Buyers = More Savings?

August 17th, 2006 at 05:44am Sean Delaney - Iasta UK

Whilst reading a book called “FREAKonomics” I was struck by such Chapters as “Why Do Drug Dealers Still Live with Their Moms?” but more seriously within the Chapter The Hidden Side of Everything, is written the following fact….. that although Denver and Washington DC have the same population, Washington has three times as many Police but it also has eight times more murders. The point here is that where an obvious relationship exists sometimes there are other factors at play.

I felt this had an immediate correlation to procurement and eSourcing in that employing more buyers does not necessarily equate to more savings. In fact as stated in numerous surveys like the Aberdeen Survey there is possibly a stronger relationship between a lower cost base and the use of sourcing tools like Spend Analysis.

In my opinion Spend Analysis should be the first Investment that every Procurement Director/Snr Manager should take but why don’t they? Well here are some potential reasons:

1. The budget is not available until the next fiscal year start. (Delay up to 12 months)
2. There is a valid business case but an internal solution is preferred based on delivering savings at the same time. This could take up to 18 months as projects are cherry picked to deliver savings and consequently results in a start/stop buying cycle.
3. If the resources are not in place the internal solution will require the recruitment of a team of buyers to achieve this goal (recruitment 6 months + familiarisation 3 months + Spend Analysis at Category level 3 months + detailed analysis 3 months + Savings results 3 months = total 15 months for first result).

At best it could take up to 12 months and at worst 18 months to see credible results. However by integrating a good spend analysis tool results could start to be reaped in month 2!

So I would suggest before starting any senior procurement role a Buying executive should firstly negotiate a budget for spend analysis and secondly negotiate a budget for an eSourcing suite which will deliver savings on the spend data.

As proved in the book FREAKonomics the employment of more people does not necessarily equate to better productivity. With regard to drug dealers and esourcing I am finding correlations a little harder to find!

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Entry Filed under: Functionality, General, Spend Analysis, Technology