In the Part 1 on this topic, we talked about market price fluctuations and savings reports tied to baseline spend numbers which become irrelevant soon after they are established.
So what else is wrong with savings reports?
Let's start with volume of purchases. Most companies don't have static volume levels. Again, the baseline of savings was pegged to purchasing a certain volume.
Let's say a volume of 100 units purchased from a new vendor saved your company 20 dollars. If you continued to purchase 100 every year of the three-year contract, then you could reliably predict and report savings numbers of 20 dollars per year. What if volume triples in the second year, then you suddenly look like a hero for saving 60 dollars. Good for you. If volume falls to 50 in the second year, then your savings report for the year falls to 10 dollars. Does that mean you did a poorer job that year or that there was something wrong with the contract in the first place?
It means that other factors changed the hallowed, revered (and reviled) savings report is just not an accurate tool.
More to come on this topic in the future!
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