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ROI: Definition & important points for buyers
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Return on investment in a nutshell:
Return on investment (ROI) is a key figure that expresses the percentage ratio between the capital invested and the profit generated. In purchasing, ROI serves as an important decision-making criterion for evaluating investments and projects and for measuring the efficiency of purchasing measures.
Example: A purchasing project to implement an e-procurement system costs EUR 100,000 and generates savings of EUR 30,000 in the first year through process optimization, which corresponds to an ROI of 30%.
Contents
Introduction to purchasing controlling: Return on investment
What is return on investment (ROI)?
The return on investment (ROI) is a key performance indicator in business administration that expresses the relationship between the capital invested and the return generated. It provides information on how efficient an investment is and how long it takes to amortize the capital invested. In procurement, ROI helps to evaluate the profitability of investments such as new supplier relationships, procurement technologies or optimization projects.
Core elements of the ROI
Importance of ROI in purchasing
In strategic purchasing, ROI is an essential tool for evaluating the profitability of procurement decisions. By analyzing the ROI, buyers can determine which investments generate the greatest added value for the company. This supports the prioritization of projects, optimizes the budget and strengthens the negotiating position with suppliers.
Application of ROI in purchasing
The return on investment (ROI) in purchasing makes it possible to evaluate the profitability of investments in procurement projects. The ROI calculation shows how efficiently the capital invested is being used and whether an investment is financially worthwhile.
Calculation example
Example: Investment in a new e-procurement system
Investment costs: € 50,000
Expected annual savings: € 20,000
Calculation of ROI over 3 years:
Total income = € 20,000 × 3 years = € 60,000
ROI = (total return - investment costs) / investment costs × 100%
ROI = (60,000 € - 50,000 €) / 50,000 € × 100% = 20%
The ROI of 20% over 3 years shows that the investment pays for itself and contributes to cost savings.
Evaluation and strategic findings
✓ Critical success factors
→ Precise cost allocation: exact recording of all direct and indirect costs for reliable ROI calculations
→ Realistic forecasts: well-founded estimate of future savings, taking market developments into account
→ Systematic monitoring: Continuous monitoring of ROI development for early adjustment of measures
⚠ Limitations and challenges
→ Time value of money approach: classic ROI calculation neglects the time value of money
→ Qualitative factors: Hard-to-measure benefits such as improved supplier relationships are not taken into account
→ Data availability: the challenge of obtaining reliable data for accurate calculations
Future trends and implications:
"The evolution of ROI in procurement is moving towards holistic performance measurement"
→ Integration of ESG criteria in ROI valuations
→ AI-supported forecasting models for more accurate profitability calculations
→ Dynamic ROI models with real-time adjustment
→ Extended evaluation metrics beyond pure cost savings
Conclusion on the return on investment analysis
The return on investment is an indispensable tool in modern purchasing that makes the profitability of investments transparent. Systematic ROI analysis enables well-founded decisions to be made on procurement projects and helps to optimize the use of resources. Despite certain limitations in the recording of qualitative factors, ROI remains a key instrument for strategic purchasing decisions. With the integration of new technologies and ESG criteria, ROI analysis is constantly evolving and becoming increasingly important for forward-looking companies.
