There is often a discrepancy between the savings numbers reported by Purchasing and those accepted by the financial wizards of a company.
I worked at a company that had a "savings committee." Buyers constantly filled out and turned in savings reports that were evaluated by a committee of several people, only one of whom was from Purchasing. This committee would look at the reports as well as the supporting documentation and "determine" if the reported savings were legitimate. I really hope they have dropped that entire practice by now.
What brought this to mind is a recent article from Purchasing magazine titled How to Speak like a CFO which encourages Purchasing personnel to understand the terminology used by financial people (such as ROIC and EPS) in order to explain savings to them in those terms.
One innovative approach I really liked mentioned in the article referenced Linda Peyton, Director of Procurement Technology for Blyth, Inc., in Greenwich, Conn. The article explained how she demonstrated savings value to executives by consulting with the sales department to calculate how to to equate savings with additional sales. Interestingly, in their particular business, $1.6 million in savings was equal to $3.6 in additional sales on an earnings before interest and taxes basis.
Congratulations to Linda for thinking of presenting the information that way.
Be sure to check the article for more ideas as well as for a crash course in relevant financial terms.
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