How to measure cost savings in procurement?
Your organization’s cost savings are a measure of the savings made when the procurement team secures goods and services at lower prices. This metric is essentially a product of the cost saved per unit and the total number of orders.
Consider the situation where a vendor offers $100 per Good X if you’re purchasing 10 units. In this case, your total cost is $100*10=$1,000.
Suppose your procurement team negotiates successfully and secures the deal at a 10% discount. In this case, your total cost becomes $90*10=$900. So, you save $1000-$900=$100. These are your cost savings.
You would have achieved the same result by directly multiplying the amount deducted per unit by the number of orders: $10*10=$100. Your procurement software can automatically track such metrics for you.
Larger measures of cost savings show that your procurement team is negotiating well. On the other hand, low values indicate that your team can do better with securing deals or researching other suppliers. The stronger your research and the better your relationships with your vendors, the more cost savings you’ll enjoy.
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