Savings Benchmark > Measurements beyond cost savings and avoidance

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    • #292509

      Recently we asked the community to respond regarding a fundamental procurement measurement; savings. We wanted to know if people measured a ratio of hard savings to cost avoidance. We received some very insightful responses that SIG Members can view here

      We’d like to know more about your savings policies. 

      1. What other forms of value beyond hard savings and cost avoidance does your company track? For example, process efficiencies (e.g. reduction in headcount through implementation of automation) and revenue enablement opportunities. 

      2. Are these being tracked officially with reported targets? If not, how are they being managed?

       

    • #295170
      Anonymous
      Guest

      At [member buy-side from retail banking], hard savings is our primary metric. We have a methodology to collect cost avoidance savings using the same toolset (Scout/Workday), but we do not actively collect, track, or report on cost avoidance savings. All savings are reported on an annualized basis, so negotiating a 5-year contract that was $3MM/yr down to $2MM a year would result in a $1MM savings in year 1 vs $5MM over the life of the contract. Our departmental savings target each year is established using a baseline of 400% ROI against the total cost of Procurement (personnel, software, expenses, etc). We typically set a stretch goal above and beyond that baseline.

       

      Other metrics we track include:

      •Spend Under Management – amount of total third-party spend that has a contract or PO actively managed by Procurement/AP. 

      •Closed Loop Spend – amount of spend where an invoice matches to a PO or a contract, and has a control in place to limit spend to the amount of the order (i.e. the system would not allow the vendor to invoice $150k against a contract that was for $100k)

      •Supplier Diversity Percentage – % of spend with certified diverse suppliers

      •Cross Sell Revenue – we actively identify suppliers that are potential clients of the bank, and partner with banking sales teams to go after them. We track any revenue generated as a result of this cycle.

       

    • #295171
      Anonymous
      Guest

      From a Sourcing/Procurement perspective…P&L and CA are the only two “we” track (get to “count”).  There is however another team in Finance Team called Continues Improvement Program (CIP) that has a broader scope of what they can track / count.  Things like the process and staff efficiency project described below is tracked by that team.  i.e. those changes are driven/tracked outside of supply chain exercises/projects.  

    • #295172
      Anonymous
      Guest

      1.What other forms of value beyond hard savings and cost avoidance does your company track? For example, process efficiencies (e.g. reduction in headcount through implementation of automation) and revenue enablement opportunities.  

      •Efficiencies – Operating Cost / Spend Under Management, FTE per Billion Under Management

      •Internal Stackholder Satisfaction – via annual survey

      •SLA – responsiveness within 48hrs from initial request

      •Visibility – rate of weekly updates to stakeholders

      •Compliance – monthly reporting on procurement policy objectives

      2.Are these being tracked officially with reported targets? If not, how are they being managed? 

      •Monthly executive dashboard with historical trends

      •No targets

      •Baseline against info available via group memberships

       

    • #295173
      Anonymous
      Guest

      You can’t cheapskate to greatness.   Savings metrics are becoming antiquated, and driving the wrong behaviours.

      Vendor quality, satisfaction, and innovation are all becoming more important than savings.

       

    • #295174
      Anonymous
      Guest

      We do track P&L savings which is one of our annual KPIs however, we also track Other Value(OV) Savings.  These are things such as cost avoidance as noted below as well as any additional goods/services received at no cost.  An example would be free software training when purchasing new licenses.  

    • #295175
      Anonymous
      Guest

      Yes, we do track efficiency savings from headcount savings. If this is something that will be attributed to suppliers for a contractual savings goal, then we discuss and agree to the calculation of the cost per FTE during the contract negotiation. If it is an internal project, then we use our internal agreed cost and when a project is approved for implementation by Finance and leadership, then the savings are included in the project savings, and the team receiving the automation must move the affected FTEs to another role or transition them out of the department. 

      We also track savings realized when we transition people from contractor to FTE. Again, we use the fully-loaded cost (internal calc) compared w/ the contractor cost, over the period of one year. 

       

    • #295176
      Anonymous
      Guest

      1. “Managed” spend, $ under contract

      2. yes, official measures.

       

    • #295177
      Anonymous
      Guest

      One of the whitepapers that I mentioned in a recent discussion provides an overview of value drivers. Perhaps this can be useful to SIG members.

       

    • #295178
      Anonymous
      Guest

      I tend to avoid treating Savings in isolation to the initial objectives of the commercial arrangements so that I can track the achievement of the initial Business case to see if we got all of the value that we expected from it. This also forces us to make sure that there is a trackable business case before we enter the commercial arrangement and this in turn forces us to clearly articulate the objectives (and the associated metrics) before we embark on the procurement process. Where savings are a key component, it is critical to find a measure of productivity as this will better measure of whether the savings are real or just pushing costs elsewhere. This is usually pretty difficult to do and where we find it hard to do that we tend to look at average cost per/xx i.e. on a staff augmentation arrangement you might look at average cost per hour for a specific department for those external resources. You can then tract any changes in this to see if improvements are generally improving that figure.

    • #295179
      Anonymous
      Guest

      1.What other forms of value beyond hard savings and cost avoidance does your company track? For example, process efficiencies (e.g. reduction in headcount through implementation of automation) and revenue enablement opportunities. We track both P&L and Cost Avoidance savings.  P&L based (or hard savings), is more heavily scrutinized against the respective baseline.  Additionally, we add Finance validation for savings of $500K or >.  This past year, we have also started tracking value creation categories (including revenue enablement), that may not result in a dollar savings value.  These are tracked with radio buttons (and comment fields) in Scout.

      2.Are these being tracked officially with reported targets? If not, how are they being managed?  We have an overall annual savings target, not broken out by P&L vs. Cost Avoidance.  We also have targets to populate value creation categories for projects of a certain dollar value.  Let me know if you would like additional information on the value creation fields.

       

    • #295180
      Anonymous
      Guest

      1.What other forms of value beyond hard savings and cost avoidance does your company track? For example, process efficiencies (e.g. reduction in headcount through implementation of automation) and revenue enablement opportunities.

      We track multiple forms of value aside from savings and avoidance. They include:

      •Risk Reduction – Reducing program risk via contract negotiation or supplier reallocation

      •Revenue Growth – revenue share programs, marketing agency improvements, etc.

      •Operational Efficiency – time savings, resource reduction/reallocation

      •Supply Assurance – Securing supply in times of shortage or change (pandemic, supplier bankruptcy)

      •Innovation – Discovering new technology or innovations to bring to the company via sourcing/research

      •Diversity & Inclusion – Increasing our spend with existing or new D&I suppliers

      •Strategic Investments – Deliberate increased spend to achieve a goal (better service, equity in a partner, exclusivity, etc.)

      2.Are these being tracked officially with reported targets? If not, how are they being managed?

      We have tracked these metrics for about 3 years now and they are reported to our CFO.  There are official targets in Savings, Avoidance, and D&I.  The remaining categories have no targets.

       

      That said, we’ve found it’s helpful to share the numbers, stories, and anecdotes in ‘non target’ categories.  Those headlines can be more memorable than the typical “we saved $XX” story.

      Things like:

      •Securing masks and hand sanitizer so your locations can stay safe and open during a pandemic

      •Quickly contracting with a new carrier to deliver your goods after another carrier goes bankrupt

      •Uncovering a new supplier to invest in (equity stake) during a sourcing process

       

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