Presentation Tips for Procurement Managers: Savings People Believe
By Daniel Harper · Career & Business
How should a procurement manager present savings? Against an honest, agreed baseline, not against the supplier’s first quote. State how each saving was measured, separate one-off savings from recurring ones, and show what the budget holder will actually see in their accounts. Savings the business cannot find in its budget damage procurement’s credibility.
Procurement teams are often measured on savings, and that creates a presentation problem. A saving is a difference between two numbers, and the number it is measured against can be chosen generously. Budget holders know this. When procurement reports large savings that never show up in anyone's budget, the next report is believed a little less.
The baseline is the whole argument
The most common way savings get inflated is the baseline: measuring the agreed price against the supplier's first quote, or its list price, rather than against what the business was actually paying.
There is a reason first quotes are a tempting baseline: they shape everyone's sense of what a price should be. In a famous experiment, Amos Tversky and Daniel Kahneman spun a wheel of fortune rigged to stop at 10 or 65, then asked people to estimate the percentage of African countries in the United Nations. Those who had seen 10 gave a median estimate of 25%; those who had seen 65 gave 45%.1 Even a number known to be meaningless pulls judgement towards it. A supplier's opening quote is far from meaningless, but it is an anchor set by the supplier, and measuring your success against it flatters the result.
So present savings against a baseline the budget holder recognises:
- For an existing spend: the price you paid last time, adjusted for volume.
- For a new purchase: a fair market benchmark, explained.
- For avoided increases: the increase the supplier asked for and what you agreed, labelled clearly as cost avoidance rather than savings.
Separate the kinds of savings
A single savings total mixes things that should not be added together. Show them separately:
- Recurring savings that will appear in budgets year after year.
- One-off savings on a single purchase.
- Cost avoidance: increases that did not happen.
Budget holders trust a procurement team that labels these honestly far more than one with a larger single number.
Show where it lands in the budget
The test of a saving is whether the budget holder can see it. For the largest savings, show which budget line it affects and from when. If a saving will not reduce a budget, because the money is being spent elsewhere, say so.
Presenting a category strategy
When you present a strategy for a spending category (for example, all IT hardware, or all freight), structure it like any investment case:
- The spend today: how much, with how many suppliers, and what is wrong with it.
- The market: what is changing, who the main suppliers are.
- The strategy: consolidate, tender, renegotiate, change the specification.
- What it delivers: savings, risk reduction, better service.
- What you need: stakeholder time, a decision, a budget.
Questions to expect from budget holders
Budget holders will ask whether the saving is real, why they still see the old price on an invoice, and why procurement is adding steps to their purchases. Have the baseline ready, a list of contracts still rolling over to new prices with their dates, and the time your process takes compared with what it was last year. Procurement that can answer these three questions gets invited earlier next time.
Presenting a supplier failure
When a supplier fails, the business will want to know what happened and whether procurement saw it coming. Present it plainly: what happened, the effect, what you have done to protect supply, and what you are changing in supplier monitoring.
For the interview questions that cover this work, see behavioral interview questions for procurement managers, and for the research on first numbers in negotiation, the first number said out loud anchors everything after.
References
- Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: heuristics and biases. Science, 185(4157), 1124–1131. https://doi.org/10.1126/science.185.4157.1124