Procurement Intelligence Unit

If procurement is delivering revenue and the business targeted on its procurement related revenue contribution – that sends a much stronger message than waving the P2P stick and shouting about compliance. The “I-can-get-a-better-price-myself” objection disappears because the business knows that the price paid is retail and the whole image of procurement is transformed.

The problem here is that if the supplier thinks you are looking for a rebate from the outset they can build in the cost of the rebate into the proposal and you’re effectively getting your own money back! However I’ve used the rebate tool effectively at the end of an RFP process to turn “Cash/Equipment Funds” offered and held by the supplier to facilitate an agreed purchase of new/replacement equipment and received these as a rebate at the end of a given period. You can propose then to pay for the equipment upfront and ask for the fund as a rebate. This works well if you don’t spend as much as planned and you get the full fund rebated… 

This is an interesting articles. However, all over the world organisations are looking at simplification of their model/businesses. Getting a discount compared to getting a rebate is much simpler. In that context how attractive this would be ?

Many thanks to all for encouraging and opening the debate; it’s very much appreciated. Regarding Kenneth's comment, Procurement must have a baseline price to start with, therefore the idea of price creep for a rebate would be difficult for the supplier to support and substantiate. Before any procurement negotiation, be it discount or rebate the benchmark price must be agreed and signed up beforehand.

Tiran, the debate is around discount versus rebates and which is easier. Whilst in theory discounts appear to be easier, we also must come to the understanding that as it stands discounts are very difficult to substantiate and realise. Especially in a truly global enterprise that can consist of thousands of cost centers, budget holders and buyers. How do we prove that we have achieved the discounts, given they do not appear on the P&L versus the cost of procurement? Does the CFO believe us, or does he in fact give up?

David,

1) This is based around a realistic baseline. If I can prove that, I don't need a rebate to show the cost reduction.
2) Now I have added costs into the system. Yours. Why wouldn't I do this direct?
3) What happened to the phrase "Cash is king"? I'm now giving away cash flow that I won't see again for a number of days. Seems an odd thing to want to do.

Craig

David - Could you confirm the effect on cashflow, is this minutes, hours, days or weeks?

Cheers

Mark

Craig,
I would agree that baseline proves the reduction in price, but does it prove that the saving has been delivered across the entire organisation? If this is correct then why are major organisations and consultancy firms looking into benefits realisation and other tools to justify themselves to the CFO?
Would you be actually adding cost or improving efficiencies in the process, studies have proven that the most efficient transactional efficiencies are still to be gained within the payment processing industry? The cash effect is the same as both discounts and rebates can only be realised at the point of payment. Cash is king, you can bank income can you bank a discount?

I think this is a great idea, we are currently at the end of the first budget cycle of setting up a very rigorous process for track and getting the savings to the bottom line. Even with this, it is endless work to get finance sign-off and for them to actually take it out of budget. Alot of senior stakeholder management is needed. So while we are succeeding it is very time intensive. I like this idea as I see how it could cut through alot of non value add discussions.

Pauline, thanks for the comment. I would be interested to know what would it take for you organisation to adopt this type of approach. Do you think it would be a hard sell to your CFO? What be your challenges?

This is common in the procurement landscape, with many CPO's tackling the issue of stakeholder buy in and acceptance of an invisible benefit, one in which even the budget holder can re-spend. What we need Procurement to face up to today, is that discounts are very difficult to manage. After all if you have several thousand cost centers, with several thousand budgets holders and then buyers on top of that, then it is very simple to lose the benefit within our very own structure. Time for change one thinks, are you up for the challenge?

Folks,
This topic is interesting but have we paused to consider what the integrity of the function will be? Won't buyers focus on padding prices and taking rebates to boost their ratings in the organisation? My take is, there must be a combination of both and never a substitution - go for the savings (discounts) first and then negotiation rebates based on volumes or values thresholds.

Am interested to understand how this sits with the governments 10 day prompt payment committment to help SMes. This appears to require the SMEs to offer a further discount when they should be able to request earlier payment without this.