The debate about procurement savings is almost entirely about the percentage achieved in a single procedure. How much was extracted, against which price, with what negotiating approach.
The more consequential figure is a different one. It is the share of procurement volume that reaches a structured procedure at all.
Whoever tenders half their volume and achieves three percent ends the year better off than whoever tenders a quarter and achieves five percent.
Coverage is a factor in the same multiplication as the saving. It is simply named less often, because it is more awkward to determine. The savings rate appears in the award report. The coverage rate has to be compiled across all categories by someone.
In a buying group this figure is easier to grasp than in a single company, because it attaches to a concrete number. How many categories did the central office bring to market this year?
The mechanisms of a tendering tool operate at two different points, and that is not an academic nicety.
The competition effect arises within a single tender. It rests on an additional supplier being involved and on the participants pricing their mark-up differently because they can see the competition and know the rules of the procedure. This effect appears with the first procedure and is visible in the award.
The organizational effect arises between tenders. It rests on a tender costing less time, so that more procedures take place over the course of a year. This effect appears with a delay, but works cumulatively, and it cannot be read from an individual award, only from the annual view.
The competition effect is better grounded in theory but limited in size. The organizational effect is more weakly grounded in theory but has the greater leverage, because it does not act on the price but on the number of transactions in which a price is negotiated at all.
The route to higher coverage does not run through better negotiation. It runs through the time a single procedure consumes.
A buyer who needs three days per procedure completes a certain number of procedures per year. If the effort falls, that number rises, and with it the share of volume awarded in competition.
Categories whose contract is quietly renewed for lack of time are the clearest expression of this. Nobody decided that this category would not be tendered. There was simply never time.
In a central office with few people working for twenty or fifty member companies, exactly this determines the group's annual result. Not the quality of the individual procedure, but the number of them.
A survey by the Leipzig University of Applied Sciences among 181 companies from 18 European countries arrives, for the procurement of indirect materials, at an average of around 2,500 orders per company per year at roughly 38 minutes of effort per order. Only 15 percent of the companies surveyed have fully digitalized processes. The survey was conducted together with a vendor for indirect materials procurement, which should be taken into account when assessing it.
These figures describe the operational ordering process, not the effort of a tender. They do not prove a link between using a tool and the number of procedures run per year. They do make it plausible that capacity is tied up in procurement work that is then missing for strategic work.
The obvious step would be to value the time gained and add it to the result. We deliberately do not, for two reasons.
The first is the same one that leads to the distinction between cash-effective and non-cash-effective figures. Saved working time only changes the annual result if it actually leads to lower personnel costs. In the mid-market that is the exception. As a rule the freed time is used differently, which makes business sense but does not show up in the profit and loss account.
The second is practical. A calculation that converts saved hours into euros leads into a discussion about headcount reduction. That is neither the intention nor the usual course of events. The freed capacity goes into additional tenders, and that effect then appears as coverage. Counting it twice would be wrong.
How do we determine our coverage rate? Two numbers are enough to start. The total bundleable volume of the participating member companies, and the part of it awarded in a structured procedure last year. The difference is the room to move.
Our rate is already high. What does that mean? That the remaining effect is smaller. An organization with a high tender rate and experienced buyers is the hardest case for a business case, not the easiest. That runs counter to every vendor's sales interest and still stands.
Can the split between the two effects be quantified? Not reliably. It would require observing the same organization over several years in the same category before and after implementation, capturing price development, bidder numbers and number of procedures separately. We do not have such data. We name the direction, not the ratio.
Chapter 4 of the study distinguishes the two kinds of effect, assigns the four mechanisms to them and sets out what can be evidenced and what cannot.
→ To the white paper
The more consequential figure is a different one. It is the share of procurement volume that reaches a structured procedure at all.
The calculation with two factors
Whoever tenders half their volume and achieves three percent ends the year better off than whoever tenders a quarter and achieves five percent.
Coverage is a factor in the same multiplication as the saving. It is simply named less often, because it is more awkward to determine. The savings rate appears in the award report. The coverage rate has to be compiled across all categories by someone.
In a buying group this figure is easier to grasp than in a single company, because it attaches to a concrete number. How many categories did the central office bring to market this year?
Two kinds of effect
The mechanisms of a tendering tool operate at two different points, and that is not an academic nicety.
The competition effect arises within a single tender. It rests on an additional supplier being involved and on the participants pricing their mark-up differently because they can see the competition and know the rules of the procedure. This effect appears with the first procedure and is visible in the award.
The organizational effect arises between tenders. It rests on a tender costing less time, so that more procedures take place over the course of a year. This effect appears with a delay, but works cumulatively, and it cannot be read from an individual award, only from the annual view.
The competition effect is better grounded in theory but limited in size. The organizational effect is more weakly grounded in theory but has the greater leverage, because it does not act on the price but on the number of transactions in which a price is negotiated at all.
The quietly renewed framework agreement
The route to higher coverage does not run through better negotiation. It runs through the time a single procedure consumes.
A buyer who needs three days per procedure completes a certain number of procedures per year. If the effort falls, that number rises, and with it the share of volume awarded in competition.
Categories whose contract is quietly renewed for lack of time are the clearest expression of this. Nobody decided that this category would not be tendered. There was simply never time.
In a central office with few people working for twenty or fifty member companies, exactly this determines the group's annual result. Not the quality of the individual procedure, but the number of them.
A survey by the Leipzig University of Applied Sciences among 181 companies from 18 European countries arrives, for the procurement of indirect materials, at an average of around 2,500 orders per company per year at roughly 38 minutes of effort per order. Only 15 percent of the companies surveyed have fully digitalized processes. The survey was conducted together with a vendor for indirect materials procurement, which should be taken into account when assessing it.
These figures describe the operational ordering process, not the effort of a tender. They do not prove a link between using a tool and the number of procedures run per year. They do make it plausible that capacity is tied up in procurement work that is then missing for strategic work.
Why we still do not convert saved hours into euros
The obvious step would be to value the time gained and add it to the result. We deliberately do not, for two reasons.
The first is the same one that leads to the distinction between cash-effective and non-cash-effective figures. Saved working time only changes the annual result if it actually leads to lower personnel costs. In the mid-market that is the exception. As a rule the freed time is used differently, which makes business sense but does not show up in the profit and loss account.
The second is practical. A calculation that converts saved hours into euros leads into a discussion about headcount reduction. That is neither the intention nor the usual course of events. The freed capacity goes into additional tenders, and that effect then appears as coverage. Counting it twice would be wrong.
Frequently asked questions
How do we determine our coverage rate? Two numbers are enough to start. The total bundleable volume of the participating member companies, and the part of it awarded in a structured procedure last year. The difference is the room to move.
Our rate is already high. What does that mean? That the remaining effect is smaller. An organization with a high tender rate and experienced buyers is the hardest case for a business case, not the easiest. That runs counter to every vendor's sales interest and still stands.
Can the split between the two effects be quantified? Not reliably. It would require observing the same organization over several years in the same category before and after implementation, capturing price development, bidder numbers and number of procedures separately. We do not have such data. We name the direction, not the ratio.
The next step
Chapter 4 of the study distinguishes the two kinds of effect, assigns the four mechanisms to them and sets out what can be evidenced and what cannot.
→ To the white paper