Question

Discuss why procurement savings can be difficult to measure

Answer 1

Why are procurement savings can be difficult to measure -?

1. Raw material procured at lower cost may be of lower quality, hence bringing a decline in sales, or returning of products. Although, when products are returned, or sales are declined, there are several reasons which one may think behind the decline, and it is difficult to state the exact reasons behind them, procuring low cost raw material being one of them. As this is not easily quantifiable, it is difficult to say if your procurement saved you money or made you suffer losses.

1. One way of procurement saving is to help your vendor upgrade over the time, help it bring better technology, better manufacturing methods, and reduce the cost of raw material (the product the manufacturer is supplying to you) over the time. But the money, and time you invested in upbringing your vendor, and what could have been the result if you had invested that time and money some where else, is unquantifiable, and hence this kind of procurement saving is also difficult to measure.

1. Another type of procurement saving is upgrading your manufacturing and hence using less raw material over the time. But again, the investment in time, training etc. Is unquantifiable, and you cannot calculate the exact savings you gained by upgrading your manufacturing

1. Another type of procurement saving happens, when there are small suppliers for each different part of your product, who supply at lower rates but equal quality to that of any large supplier. However, there are times, when there is difficulty caused in coordinating amongst the suppliers, and this involves cost of coordination which is unquantifiable.  

If you want some further points, or have any doubts, or need any clarifications on the points mentioned, please post in the comments. Thank You