Why Procurement Must Look Beyond Cost Savings in Services Spend Management

Learning How Strategic Alignment and Outcome Tracking Can Help Procurement Deliver Real Value

Services spend management is a critical area of organisational spend that usually receives insufficient strategic focus despite being a major component of organisational budgets. New research conducted across the globe shows that procurement leaders are realizing their capability to deliver outcomes that extend past conventional cost savings.

The research conducted by Art of Procurement and SAP demonstrates that procurement value transcends cost reduction because it requires services spend to support organizational strategic objectives. The gap between understanding this truth and turning it into reality remains substantial.

The Current State of Procurement Leaders

According to research findings procurement teams have started placing service penalties in contracts to control performance results—56% of respondents currently use penalties when service targets are not met. Despite this the study reveals a major problem because many procurement leaders do not establish formal performance metrics. The failure to align penalties with their original purpose prevents procurement from maximizing its strategic worth.

Routine service buyers including cleaning service providers operate without formal KPI measurements despite contract penalties for unmet goals according to 65% of organizations. The situation regarding ad hoc services with undefined scopes including consulting becomes worse because 75% of organizations fail to implement formal outcome measurements. Activity-based service providers including courier services demonstrate poor KPI tracking effectiveness since over half (58%) fail to measure their performance indicators adequately.

Technology’s Unexploited Potential

The implementation of technology plays a key role in determining procurement effectiveness. Most organizations depend on their ERP systems for both invoice administration and purchase control as demonstrated by 60% of companies. The problem persists because 25% of organizations use informal methods such as emails and phone calls. The research confirms that organizations using dedicated platforms gain better control over their suppliers and KPI tracking thus presenting procurement teams using outdated methods with an opportunity for improvement.

The use of dedicated services procurement platforms resulted in KPI usage increasing to 61% for routine services and 55% for activity-driven services compared to 35% previously.

Strategic Alignment vs. Cost Focus

Service-based procurement leaders prioritize strategic impact on vital corporate objectives which they determine through a 49% vote. The survey participants acknowledge strategic alignment's importance yet only 54% report non-savings value results although it should be reported by all.

Among those who do report non-savings value, the top areas communicated are:

• Efficiency Improvements (66%)

• Risk Mitigation (45%)

• Strategic Alignment (35%)

• Innovation (25%)

• Social Impact (16%)

The data shows strategic alignment stands as a crucial factor according to procurement teams yet only a small percentage reports on it which creates an obvious area that needs improvement.

Barriers to Reporting Non-Savings Value

What prevents more procurement teams from demonstrating their strategic influence? The inability to measure non-savings value prevents 47% of teams from doing so and 22% of teams have failed to establish relevant value categories. The remaining 22% continues to focus solely on cost savings while business leaders show interest only in savings according to 8% of respondents.

This situation emphasizes that procurement leaders need to create better defined and robust systems to assess and communicate their complete range of value.

A Call to Action for Procurement Leaders

Services spend management is at a pivotal moment. To become truly valuable for strategy, procurement must move beyond transactional cost focus toward strategic measurement and communication of both alignment and other outcomes beyond savings.

Organizations need procurement teams to take responsibility by creating official outcome measurement systems and using technology better and reporting strategic outcomes.

How is your organization approaching services spend management? Are you measuring beyond cost savings? Please share your thoughts and experiences by posting them in the comment section.