BCG’s guide for incoming CPOs includes this statistic: only 38% of CFOs have high confidence that procurement savings reach the P&L. BCG presents this as a credibility gap, a failure by procurement to demonstrate its value to finance. The implication is that procurement needs to get better at proving itself.
That framing is wrong. The gap exists because procurement reports two fundamentally different things under the same label, rarely explains the difference, and then expresses surprise when finance can’t reconcile the numbers.
The categorisation error
Cost avoidance is not a saving. This is not a nuanced distinction. It is a categorical one.
A saving reduces what you are currently spending. You were paying $15 per unit. You negotiated $11. The budget line moves. Finance can see it. The P&L reflects it. That is a saving.
Cost avoidance prevents a cost from occurring in the first place. Your supplier proposed a 7% increase. You negotiated it to 2%. The budget line does not move. Nothing hits the P&L, because nothing was ever going to. The cost was hypothetical. The avoidance is real, but it is the prevention of a future expense, not the reduction of a current one.
Procurement reports both as savings. Finance goes looking for savings in the P&L and finds roughly half of what was claimed. Procurement calls this a credibility problem. It is a categorisation error, one procurement makes, not finance.
The CFO can’t find the savings because they were never there. That is not a measurement failure. It is a definition failure.
Cost avoidance is valuable. Preventing a supplier price increase, locking in a multi-year position ahead of market movement, negotiating out a penalty clause before it triggers: these are real contributions to financial performance. But they are contributions to budget stability, not reductions in current spend. Calling them savings does not make them savings. It makes them a number that finance will eventually audit and discount entirely, taking the legitimate savings down with them.
The year-one problem
The methodology procurement uses to count hard savings is correct. It is also almost never explained.
A hard saving is calculated in year one. You renegotiate a contract, the price drops, the saving is booked against the prior year baseline. The following year, that lower price becomes the new baseline. Holding the price in year two is not a saving. It is avoidance. The saving was captured once, correctly, in the year it occurred.
This is not an error. Budget and forecast cycles are constructed on exactly this logic. Year one is the saving. Subsequent years, maintaining that position is avoidance, which is why it matters and why it should be tracked separately.
The problem is that most organisations apply this methodology without explaining it. The CPO who secured a three-year contract with a locked price looks, in year two, like they have stopped performing. The savings number is flat or falling. Finance asks questions. The board notes the trend. Nobody mentions that the multi-year position is actively protecting the organisation from a market that has moved 12% in the interim.
Procurement knows this. Finance usually doesn’t, because procurement rarely explains the framework before the conversation becomes adversarial. The pre-alignment that would resolve it (agreeing definitions with finance before initiatives begin, not during the annual review) happens in fewer organisations than it should. Suplari’s research suggests it would eliminate the majority of post-hoc disputes. Most organisations still don’t do it.
The incentive this creates
A measurement system that only rewards year-one savings creates a structural incentive to keep finding new things to source rather than managing existing commitments well.
If holding a multi-year position generates no savings credit, the rational response is to deprioritise contract management in favour of new sourcing activity. Which means less attention to supplier performance, less investment in relationships, less monitoring of whether the value locked in year one is actually being delivered in years two and three. Maverick spend grows. Contract compliance falls. The savings booked in year one quietly erode through the years that nobody is measuring.
State of Flux has documented this pattern across years of SRM research. The organisations that invest in supplier relationships after contract signature, that monitor performance, that hold suppliers to what was agreed, that use the relationship to capture value the contract didn’t anticipate, are the same 6% that outperform on every other procurement metric. The rest book the saving and move on.
The incentive misalignment is not accidental. It is built into a measurement framework that procurement adopted without thinking through what behaviour it would produce. Fixing it requires agreeing with finance on what both savings and avoidance mean, how each will be tracked, and what credit procurement receives for managing existing commitments as well as creating new ones. That conversation is uncomfortable. It is also the only one that closes the gap.
Back to the 38%
BCG’s statistic is real. The confidence gap exists. But framing it as a procurement credibility problem misdiagnoses the cause and therefore points toward the wrong solution. Better communication, more detailed reporting, and improved dashboards do not fix a categorisation error. They just make the error more visible.
The 38% of CFOs who are confident that procurement savings reach the P&L are not vindicated by the data. They are CFOs who have not looked closely enough, working with procurement functions that have not explained clearly enough, in organisations where the definition of ‘saving’ has never been formally agreed.
The other 62% are not the problem. They are paying attention.
Sources: BCG, The Procurement Leader’s First 100 Days; Suplari, ‘Realize savings in procurement: how to prove what your team actually delivered’, https://suplari.com/blog/realize-savings-in-procurement-how-to-prove-what-your-team-actually-delivered.