PurchTips edition #349<\/p>\n<\/div>
Procurement departments typically report their cost savings when a contract has been signed. At that point, those cost savings are considered \u201cNegotiated Savings\u201d per\u00a0our Procurement Funnel model. In other words, the organization hasn\u2019t truly saved any money yet because it hasn\u2019t actually bought anything at a lower price yet.<\/p>\n
\u201cRealized Savings\u201d are calculated at the end of a fiscal year, after goods or services have been bought. Often \u201cRealized Savings\u201d are less than \u201cNegotiated Savings.\u201d And people get mad at the procurement department if there\u2019s a difference. But should they be mad at procurement? It depends. Let\u2019s explore some various reasons that \u201cRealized Savings\u201d ends up being less than \u201cNegotiated Savings\u201d and how much blame the procurement department should (or shouldn\u2019t) get.<\/p>\n
Reason #1: Prices varied from assumptions.<\/strong>\u00a0If the organization ends up paying higher prices than those specified in a contract, it is probably the procurement department\u2019s fault. If a supplier bills more than agreed, the procurement department has failed to manage the supplier and the contract. If a supplier charges over-and-above fees or substitutes products or services not discussed during the negotiation, the procurement department should have had known more about its organization\u2019s requirements and the market.<\/p>\n Reason #2: End user compliance was less than 100%.<\/strong>\u00a0If end users buy from non-contracted competitors at higher prices instead of contracted suppliers, it may or may not be the procurement department\u2019s fault. If the procurement department didn\u2019t adequately introduce the new supplier or failed to take specialized end user needs into its supplier selection, then poor compliance is the procurement department\u2019s fault. But if this \u201crogue buying\u201d is driven by mavericks who scoff at corporate mandates, then those mavericks should be held accountable, not the procurement department.<\/p>\n We\u2019ll cover Reason #3 in the next edition of PurchTips.<\/p>\n<\/div><\/div><\/div><\/div><\/div> Members of the NLPA get great articles just like this by email every month. As a member, you will also get access to:<\/p>\nWant to get more procurement articles by email?<\/h3><\/div>
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