It all comes down to the right definitions.

The term “savings” is often used to describe savings in purchasing. We are constantly confronted with this vague term in our discussions. Upon closer inspection, a wide variety of statements about the content of this key figure come to light. Some mean savings that affect the bottom line, others mean cost avoidance, and still others mean negotiation results.

However, in order to correctly assess the effectiveness of purchasing activities in terms of savings, it is important to consider the term “savings” in as differentiated a manner as possible and to report results accordingly.

It is therefore essential to divide savings into savings affecting net income and negotiation results. The former tend to occur in series purchasing, while the latter are reserved for indirect purchasing. The impact on earnings refers to the company’s profit and loss statement and can be verified on a part-by-part basis based on the actual invoice entries in the ERP system. This requires an automatic controlling solution that handles this automatically. It is important here to identify the causes of costs through currency effects, technical changes, supplier changes, batch sizes, etc.

Negotiation results cannot be easily derived from ERP data. This requires a secondary calculation via an additional entry – either in the ERP or outside in a separate recording tool. The calculation is based on a comparison of the award/order value with the best non-negotiated offer value. The difference is defined as purchasing management. If budget values are available, a purchasing result can even be derived.

Defense against price increases must also be recorded here. However, the air is getting thinner and thinner in terms of traceability and acceptance.

All forms of “savings calculation” can be found in WebCIS 4.0. They are clearly separated from each other and transparently traceable.
The best-of-breed dashboards included also provide this proof of purchasing success in an appealing visual format.

Conclusion: Working with clear terms and definitions is essential – unless you want your purchasing department to get a reputation for reporting figures that no one can understand. Stay clear and specific in your reporting. Your management will thank you for it.