Making Savings

Making Savings

Here are some thoughts to help you make savings

  • When buying goods or services, savings can be made either by reducing cost or by reducing demand. Manage both of these!
  • The traditional way to think of reducing cost is in terms of reducing prices but this is only one part of the scene. Take an overall view of where costs occur and work with both internal customers and suppliers to reduce them.
  • Price is just one part of the supplier relationship. It is a very important part – but delivery, quality and service are other areas to be worked on. Getting these right will also lower costs.
  • Saving money involves 3 steps:
    • Find the Savings –  Look closely at what you are spending your money on and challenge this.  Look for opportunities both to buy better and to reduce demand.
    • Get the Savings – Put together a savings plan consisting of a number of savings projects, each with its own savings target. Define how you will measure your success – in terms of savings.
    • Keep the Savings – Make sure that you know how, where and when the savings will be made. Track them down in the company accounts and transfer them (usually in terms of a reduction in budget) to a separate account.
  • The 
definition
 of
 savings is 
not
 easy. For example, if you negotiate prices down but then buy more, is this a saving? The answer is both yes and no!
    Yes – if you are measuring how well you are buying. No – if you are measuring how much money your company actually saved.
  • You 
should
 carefully align and document how savings will be defined and measured. Make sure you define the baseline against which they are to be measured. This could be last year’s price, for example, or this year’s budget.
  • All
 savings 
should 
be
 validated 
3‐ways:
 by
 procurement 
management, 
by
 the internal customer
 for
 whom
 the
 purchase
 was 
made
 and 
by 
the finance department.
  • All 
savings
 should
 be 
accurately 
recorded 
in 
a 
consistent 
manner
 (for 
example,
 in a
 spreadsheet
 or
 in 
a 
web-based
 tool).
  • Do
 not 
double‐count
 your
 savings. Savings are precious and internal pressure to reach targets can encourage different departments to claim the same money saved. You can only save the same money once!