How to Measure & Report Procurement Savings?

As per the last blog “Complexity Surrounding Procurement Function”, some may be confused over how to exactly register savings appropriately. To comprehend there isn't any specific way to report savings but does require a proper approach and clear choices. The following approach involves three parts which can help you determine procurement savings - 

• Determine method and framework – An agreement over types of savings that can be claimed should exist to help in realizing procurement savings. Since the types of saving techniques differ from one another, it becomes critical to pre-define the calculation formula and the applicable starting points with respect to saving strategies. Some considerations need to be shed upon while drafting realization method are, the level on which calculations are measured, index figures or benchmark data for comparison, calculation cycle for realizing savings – as per month, quarter, calendar year, or contract period, and whether to measure per product or category of product, etc. These touch points become the starting points for realizing savings properly. Therefore, they should be meticulously planned, documented, and validated. Since procurement works in alignment with other disciplines and often savings might have been realized by efforts of some other department in such cases a proper guideline should exist for the legitimacy of saving claims. For example, efforts and implementation performed by R&D department which resulted in decreasing overall costs should not be claimed by the procurement department. A well-designed framework helps in defining the approach to go about realizing savings. 
• Identify and Quantify Saving Opportunities – A well-executed spend analysis helps in highlighting cost-saving initiatives and further provides improvement opportunities. Quantified data sets in spend analysis are extremely helpful for procurement professionals to derive and develop reports, meticulously monitor expenditures, perform cost analysis, and stringent compliance checks. These insights further can be used to accelerate operations, provide new business intelligence, evaluate strategies, and accomplish desired goals. Procurement function in align with other disciplines identifies improvement scope and evaluate alternatives to determine savings potential and impact. The outcome of analysis helps to establish priorities and decide on the implementation of savings initiatives.
• Implementation and Securing Savings – There is no concrete way of implementing a saving strategy as it entirely depends on the type of procurement saving technique being used. The entirety of successful cost reduction relies on the implementation of devised strategies post evaluation. The aftermath of implementation demands constant checks and re-evaluations to ensure the attainment of desired results.

To conclude, all the profitable deeds/successful cost-saving efforts and all the shortfalls/failures should be completely registered and reported to ensure the credibility and legitimacy of the savings report. Procurement needs to operate in cooperation with other disciplines and especially in alignment with finance department as savings reported by procurement may not be recognized by finance. The uncertainties such as price-rise, demand-supply issues, unfavorable circumstances, etc. prevail around procurement function at all times, therefore at times results might not be pleasing and would demand alternative strategies to combat such situations. A well-maintained report can help you provide with an ample amount of actionable insights. Therefore, the right framework, diligent record-keeping and documentation of planned actions are really important to maintain and track progress.