PurchTips edition #350<\/p>\n<\/div>
In the last edition of PurchTips, we explored two reasons why \u201cRealized Savings\u201d is less than \u201cNegotiated Savings\u201d as defined in our Procurement Funnel model. Those reasons were: \u201cPrices varied from assumptions\u201d and \u201cEnd user compliance was less than 100%.\u201d Today, we\u2019ll cover one more reason.<\/p>\n
Reason #3: Quantities purchased were less than forecasted.<\/strong>\u00a0In calculating cost savings, typically you multiply the savings per unit by the quantity purchased. So, the more you buy, the more you \u201csave.\u201d If the organization buys a lower quantity than forecasted, Realized Savings will be less than Negotiated Savings. If the overestimated quantities used in calculating Negotiated Savings were not forecast by the procurement department, then the procurement department shouldn\u2019t be blamed for not hitting \u201cRealized Savings.\u201d<\/p>\n Actually, no one should be looking to place blame when quantities purchased were less than forecasted.\u00a0\u00a0 The goal for many organizations, as we teach in \u201cFinance For Strategic Procurement, Part I,\u201d is to achieve expense reduction as recorded on the profit and loss statement.\u00a0 Whether an expense reduction is achieved due to a procurement department-negotiated discount or the decision not to buy something, it is still a \u201cwin\u201d for the organization.\u00a0 To challenge procurement performance when the organization is \u201cwinning\u201d is counterproductive.<\/p>\n Now, here are three things you can do to help \u201cRealized Savings\u201d match \u201cNegotiated Savings\u201d:<\/p>\n Members of the NLPA get great articles just like this by email every month. As a member, you will also get access to:<\/p>\n\n
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