It is stupid to give buyers savings targets

There are a number of reasons why it is not very smart of management to give buyers savings targets. First and foremost, the buyers have no money, so how can they save? It’s the budget owner who is in charge of the money (hence the name); not the buyer. So in the end it will always be the budget owners choice to go left, right or straight down the middle. No matter what the buyer says. Which is exactly how it should be. Because the budget owner will also be responsible for the final outcome of their choice. So if savings are of significant importance to your company’s continued existence, the savings target should be on the budget owner. Obviously, the buyers in question can help them identify savings opportunities.

In addition, when you give buyers savings targets, you take away the unique position they could have when it comes to the procurement process. They could be the only ones involved in the process who do not have any direct interest in the outcome of that process.

Should you as buyer care which supplier gets the order? No, because you don’t have to work with them; other people do.
Should it matter to you what the actual price is, or what the costs are? No, it’s not your budget. You don’t have to pay; someone else does.
Is it your immediate problem when the selected supplier doesn’t perform as expected or when the product which has been delivered fails? No, it’s someone else’s problem first.
It may become your challenge to help solve the problems later on, but initially, you have no issues. Others do.

Since you have no direct interest in the outcome of the process, you have the unique position to identify any conflict of interest amongst the stakeholders. It is your objective to keep all stakeholders as satisfied as possible. Because a dissatisfied stakeholder may cause a problem (for someone else) down the line. (which in practice usually becomes the problem of the contractmanager)

Now let’s imagine you are a buyer at a hospital and you have been assigned to the project of adding an additional wing to the hospital. As part of that project you have to buy 100 wheelchairs for the patients; all within the overall projectbudget of 10 million, for which the projectmanager is responsible.

Who are the stakeholders and what do they care about most?

First of all, there is the projectmanager. Since this manager will move on to the next project as soon as this project is done, do you think this manager cares about the level of comfort these wheelchairs offer the ones sitting in it? Right, probably not. The projectmanager’s main concern will surely be whether or not the project will be on time and on (or maybe just under) budget.

What do you think the future pushers of the wheelchair (nursing staff) will be most interested in? Will they prefer a chair which is easy to push over one with a more padded seat for added comfort? Do you recon they will care about the price of the chair?

What about the engineers responsible for keeping the chairs up and running in the future? Will they be more interested in the ease of maintenance and whether or not they can use the same tools and spare parts as they do on all the other wheelchairs present in the hospital? They probably couldn’t care less about the seating comfort, pushing position or budget impact.

Will the employees responsible for handling the inevitable invoice care about all of the above or will they mainly be concerned with the proper references on the documents and how easy they can process them?

How about the people in charge of keeping the chairs clean, will they be bothered with the proper reference on the invoice, or would they be more interested in the ease of cleaning? In addition, the cost of cleaning will probably be on the facilities budget, whereas the purchase of the chairs will be charged to the overall project budget.

In the end, all these different stakeholders care about certain specific elements of the suppliers’ performance. And they only care about the part which concerns them. It may be that the chairs which are easiest to clean are not the most comfortable to sit in. Or the most ergonomic ones to push. Or the easiest on the budget, or the easiest to maintain.

It’s up to you as procurement professional to identify all these different areas of interest up front and come up with a proposal which keeps most, if not all, stakeholders satisfied. Because if you do not do this up front, it will come up somewhere down the line and might hurt the interests of others. So in the end it is in the interest of all stakeholders to get this clear and make choices before you actually order the wheelchairs.

You can be impartial to this, because to you it doesn’t matter whatever solution they choose; it’s not going to be your problem anyway.

Unless the unknowing and traditionally oriented management has burdened you with a savings target. In which case you do have an interest in the outcome of the process and you will do everything in your power to meet that objective. Neglecting the interests of the other stakeholders as you move along. Which is another reason why it is stupid of management to give procurement professionals a savings target on a budget which isn’t theirs.