PurchTips - Edition # 172

 

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Procurement ROI & Other Executive Terms

By Charles Dominick, SPSM, SPSM2, SPSM3

Is Procurement Speaking Management's Language?

One of the challenges of aligning Procurement with corporate strategy is understanding the jargon used by senior management. So we've defined for you three of the most important terms used by senior management.

Earnings Per Share (EPS) - Achieving an EPS target is perhaps the most visible goal of the management of a publicly-held company. Financial market analysts publicize EPS expectations and company shareholders evaluate senior management based on the variation of actual EPS vs. expectations. EPS is calculated by dividing the company's profits by the number of shares of stock issued to investors. Procurement can positively contribute to EPS by achieving savings that clearly contribute to profits. Leading procurement departments report savings in EPS. For example, if Procurement saved $2 million and the company had 100 million outstanding shares, Procurement could say that it contributed $0.02 to the company's EPS.

EBITDA - Executives often pronounce this acronym like a word. EBITDA stands for the accounting term "Earnings Before Interest, Taxes, Depreciation and Amortization." It's a measure of operational profitability that omits the effect of certain accounting and financial decisions. Because of this, EBITDA hones in on the impact of operational expenses that Procurement can affect. Some procurement departments report cost savings by saying that their actions added a certain amount of money to EBITDA.

Return on Investment (ROI) - When senior management spends a certain amount of money, they like to see a larger amount of money return to the organization in the form of increased revenue or decreased costs. This concept is called return on investment or ROI. ROI is often discussed in terms of the amount of time necessary to recoup the expenditure. Most executives like to see ROI in the same fiscal year. Some procurement departments are measured on their ROI. They determine how much it costs the organization to have an internal procurement department - considering salaries, benefits, office space, etc. - and then measure the amount of savings that the procurement department generates, with the goal for the savings to far exceed the cost of staffing and running the department.

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Spotlight On Professional Development Opportunities

SPSM Certification

Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards becoming a world-class purchasing professional.

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Is lacking a purchasing certification keeping you from getting the results, opportunities, respect, and money that you want out of your career? Today's employers refuse to reward employees for yesterday's skills. They want you to save more money, achieve better operational performance, and reduce risk. They demand that purchasing professionals like you achieve unprecedented results and without the most modern skills that can be a challenging feat!

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Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPad) (with the option of getting a Study Guide on an iPad) at:

Distinguishing yourself as an achiever in purchasing is key to sustaining a rewarding career, even in these difficult economic times. Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPad) at:

Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices  into your organization and achieve your career potential. And if you sign up for the Senior Professional in Supply Management® Program on or before May 31, 2008, SPSMSM Certification Program on or before 4/30/2007, you also get these and other bonuses valued at over $700:

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Earning your Senior Professional in Supply Management® (SPSM) Certification is the action to takeif you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSMSM Certification at:

Learn how to earn your SPSM® Certification at:

www.NextLevelPurchasing.com/spsm.html



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Free Procurement Training & Certification Starter Kit

This Starter Kit gives procurement professionals like you a clear idea on what it will take to become certified. You'll get an excellent feel for what you will need to learn and how long it will take.

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Included in your free Starter Kit:

  • Access to two lessons from courses that are part of the Senior Professional in Supply Management® Program
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  • Case studies
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