PurchTips - Edition # 196
How To Use Cost Savings Ratios & When
By Charles Dominick, SPSM, SPSM2, SPSM3
Can Cost Savings Ratios Make Reporting Easier?
Reporting cost savings is easiest when you negotiate a lower price and buy the same quantity of goods or services from one year to the next. Then, your cost savings is equal to the reduction in spend.
How do you report cost savings in these types of categories? "There's just no good way to do apples-to-apples based on a total spend," says Jim Nelles, Partner with Roland Berger Strategy Consultants. Instead, Nelles finds cost savings ratios to be a solution.
So rather than tracking the spend on every single pen or line item - especially when items are routinely discontinued - you can use cost savings ratios to demonstrate your contribution. Nelles contends that "it is by coming up with these interesting ratios and these different ways to demonstrate savings that people will start to believe what you are doing."
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