In the first two posts, I mentioned that market fluctuation and volume changes are two reasons that contribute to the questionable utility of savings reports. Here in part 3, I'll tackle savings report source material.
Large companies make their Purchasing employees track savings on a continual basis. There are monthly and yearly targets. As with all metrics, there is a danger of the metric itself becoming the goal rather than one tool to measure the result of another goal. When that happens, one must question the result.
One way that I have seen used to measure savings numbers for items quoted on a per order basis (as opposed to contracted pricing) is to take all the bids and subtract the highest amount from what was actually paid and call the delta the "savings." Another way is to take an average of all the bids and subtract the final price from this average and use that as the "savings."
While those might be interesting calculations, I think classifying them as "savings" is pushing it. When someone presents you with a "savings" figure, you really need to know how that figure was derived and decide for yourself if it meets your definition of true "savings."
Comment Preview