Procurement savings refer to the cost reductions achieved through various procurement activities and strategies. These savings can be realized in different forms and through multiple approaches, Price Savings, Efficiency Improvements, Demand Management, TCO improvements, and Cash Flow improvements.
Regardless what lever is pulled to generate the savings one or more of these methodologies can be used to calculate the benefit.
| Savings Methodology | Description | Category Example | Formula |
|---|---|---|---|
| Baseline Price | Cost savings on recurring spend items w/ known baseline prices | Ink, General Industrial | (Old Price – New Price) * Volume |
| Cost Plus (Mark-up) | Minimizing the mark-up above cost for a product of service | Electricity transmission cost, Temp Labor | (Old Markup % – New Markup %) * Current Spend / (1 + New Markup %) |
| List Less (Discount) | Maximizing the discount off of the published pricing | Software | (New Discount % – Old Discount %) * Current Spend / (1 – New Discount %) |
| Extrapolated | Savings estimated based on the savings from a representative sample of items | Office Supplies, MRO | Current Spend * (MB Savings % / (1 – MB Savings %)) |
| Substitution | Savings generated by identification of alternate products | Demand Management, Specification Change | (Old Price * Old Volume) – (New Price * New Volume) |
