Indicators can assist businesses in the development of strategies and are vital to optimize financial control. In this post, we will talk about saving in procurement, a key performance indicator (KPI) that shows the savings achieved in purchases. It represents the buyer’s gain in a negotiation.
This KPI is important not only when comes to final price, as it considers also return on investment (ROI). In practice, this means that the cheapest purchases aren’t always the most beneficial.
The importance of saving in procurement
Saving in procurement is one of the most important key performance indicators in the supply sector. This is because it shows how much was saved in every purchase, either through lower prices or through a projection of savings in a given period.
The saving strategy is decisive for the business, as besides helping to optimize costs in operations, it can directly impact the sale to end consumers.
In this post, you will see how to calculate saving in procurement negotiations, the most used KPI to decrease costs and increase profits. Keep on reading and learn more!
How to calculate the saving indicator
See below the calculation of saving in procurement negotiation:
In value (R$):
We are using illustrative values only as an example of saving calculation. Suppose that company X, a call center, received a quotation from supplier Y for the purchase of 200 new headsets.
As a percentage:
To calculate the percentage, consider the following calculation:
In the example above (for headsets), we have the following calculation:
By overall value:
As a percentage, the saving of this purchase is 9.24%.
Key saving indicators in procurement
The most used saving indicator is the one that provides the savings achieved in a negotiation with the supplier, as shown in the example above.
But there are other types of saving indicators that can be used to achieve goals in the procurement sector. They are:
- Saving against baseline: compares the amount paid in the last purchase of a given product with its current value in the market.
- Saving against quotation: refers to the full amount paid in the purchase, when the product is acquired for a price lower than the quoted value.
4 ways to earn more savings in procurement
1. Prioritize product quality
When we talk about generating savings – that is, getting more savings on procurement – the first thing that comes to our mind is spending less, isn’t it?
Although the calculation shows the saved value, other aspects must be considered to achieve goals, such as supplier’s reputation and product quality.
The buyer can focus his negotiation efforts on suppliers who have quality products and good reputation in the market, thus avoiding future losses.
2. Evaluate item by item in the proposal
What matters here is detail. What is the value of each item in the proposal? Are the prices competitive? Rather than considering only the total amount, look at each item individually.
The overall value of a proposal may be more attractive, but the buyer must pay attention to the individual prices of products, to avoid having the wrong view of savings.
By analyzing the proposal and products individually, the buyer has more chances to negotiate and achieve savings.
3. Seek strategic partnerships
Having suppliers as partners and building trust relationships help to achieve more savings in negotiations.
In such relationship, with the purpose of strengthening the partnership, suppliers usually include very competitive prices in their proposals.
In addition to savings, strategic partnerships contribute to decrease the work time dedicated to purchase closure.
4. Align the procurement team with the company’s goals
Before negotiations and the search for more savings, buyers must be aware of the sector’s goals and the possible ways to achieve them.
With the lack of strategic alignment and access to data and analysis, the procurement team decisions can be fragile and even uncommitted to the company’s goals.
Therefore, having access to tools that help buyers to analyze, compare and make more assertive decisions is crucial to achieve the expected results.
Now that you know what is saving in procurement and how to achieve it, would you like to go deeper into procurement-related issues? Subscribe to our newsletter and receive other contents like this one!