The relationship between procurement and ROI

September 19, 2017

Let’s talk about Return on Investment (ROI)…but before we scare off all the non-finance majors reading, we want to note that when we talk about ROI in the procurement context it is about the actual value of the procurement department within the greater context of a company. Don’t worry we would give you fair warning before diving into a Tuesday afternoon math lesson.

Beyond traditional cost savings, procurement provides savings in the way of innovation, efficiency and risk management. Harvard Business Review reported that the value of increased business efficiency alone through strategic sourcing could drive ROI up 400%. Additionally, resources like Fairmarkit give internal decision makers the ability to easily and quickly compare prices and quality of options, ensuring that you get the best quality technology at the lowest prices.

According to the Hackett Group, top-of-the-line procurement organizations save, on average, 22% on labor costs. Additionally, they require 29% fewer full-time works to provide the same quality (or better) service as their peers. For a standard company with around $10 billion in revenue, achieving this standard of performance in procurement could mean as much as $6 million in potential annual savings.

To summarize our math-free lesson for the day, an efficient procurement team supplies greater productivity, strengthens collaboration, can minimize risk and drives long-term ROI to keep the business competitive.

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