PurchTips - Edition # 110

 

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Picture of Charles Dominick, SPSM, SPSM2, SPSM3

Cost Savings Reporting: Dot The I's!

By Charles Dominick, SPSM, SPSM2, SPSM3

Are Your Cost Savings Reports Believeable?

Purchasing often fails to get management's respect because its cost savings reports aren't believable. But you can make your cost savings reports more believable if you can understand and reconcile the difference between "cost savings" and "expense reductions."

When you claim cost savings, management expects to see the expenses on its financial statements lower than the previous year. In many cases the cost savings you report are much different than the change in expenses.

This disparity hurts your credibility. Managers with a financial background were trained early in their careers to reconcile financial reports – ensuring that differences between numbers from two sources are accounted for.

You should account for the differences between your cost savings and the actual expense reduction. Here are reasons cost savings exceed expense reductions. Think about how to reconcile these in a cost savings report.

Quantities Increased: If you paid $2.00 per pair of safety goggles last year and this year purchased 10,000 goggles at $1.50 per pair, you'd probably report a cost savings of $5,000 ($0.50 x 10,000), right? But what happens to the expenses if you only bought 5,000 last year? That's right, the expenses increased from $10,000 (i.e., $2.00 x 5,000) to $15,000 ($1.50 x 10,000)! So account for that when reporting cost savings, explaining that while the quantity increase would have resulted in expenses rising by $10,000 if last year's price was held, you offset $5,000 of that increase by improving pricing.

New Expenses Arose: If you purchased large quantities of an item that your organization never used before, you don't have a price benchmark. If you negotiated the low bidder's prices even lower, you'd likely report the negotiated difference as your cost savings. But what do expenses do? They go up because you spent money on a category on which you spent no money last year.

Increases Aren't Reported: Cost savings are often reported in isolation. Let's say you reported cost savings of $100,000 for reducing costs in one category by that amount. But what if the spend in your other categories increased by a total of $200,000? Should you still report $100,000 as your annual cost savings?

Better-Than-Market Performance Is Counted: Many purchasers measure their cost savings on price-volatile commodities (e.g., petroleum-based products) by comparing percentage cost changes with indexed cost changes in the market. But before claiming cost savings when you "beat" the market, consider how management may see things in terms of expense reduction.

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Spotlight On Professional Development Opportunities

SPSM Certification

Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards becoming a world-class purchasing professional.

You see, today's employers refuse to reward employees for yesterday's skills.They demand that purchasing professionals like you use the most modern skills and achieve unprecedented results. They want you to save more money, achieve better operational performance, and reduce risk.

Is lacking a purchasing certification keeping you from getting the results, opportunities, respect, and money that you want out of your career? Today's employers refuse to reward employees for yesterday's skills. They want you to save more money, achieve better operational performance, and reduce risk. They demand that purchasing professionals like you achieve unprecedented results and without the most modern skills that can be a challenging feat!

So how can you acquire the most modern skills, achieve meaningful results, and convincingly prove your capabilities to today's employers? There is an impressive purchasing certification program that will teach you what you need to accomplish all of this and more. It is the SPSM® Certification, earned by completing the Senior Professional in Supply Management® Program. And you could earn it in less than a year - maybe even much less than a year!

Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPad) (with the option of getting a Study Guide on an iPad) at:

Distinguishing yourself as an achiever in purchasing is key to sustaining a rewarding career, even in these difficult economic times. Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPad) at:

Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices  into your organization and achieve your career potential. And if you sign up for the Senior Professional in Supply Management® Program on or before May 31, 2008, SPSMSM Certification Program on or before 4/30/2007, you also get these and other bonuses valued at over $700:

  • FREE $30 gift certificate to Amazon.com!
  • FREE CD-ROM with printer-friendly versions of the class materials!
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  • FREE audio CD about purchasing job security!

To learn how to earn your SPSM® Certification and get these valuable bonuses, visit:

Earning your Senior Professional in Supply Management® (SPSM) Certification is the action to takeif you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSMSM Certification at:

Learn how to earn your SPSM® Certification at:

www.NextLevelPurchasing.com/spsm.html



Purchasing News

  • Since the last edition of PurchTips, at least 3 new jobs preferring candidates with the SPSM®Certification have been posted at www.NextLevelPurchasing.com/jobs

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This Starter Kit gives procurement professionals like you a clear idea on what it will take to become certified. You'll get an excellent feel for what you will need to learn and how long it will take.

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Included in your free Starter Kit:

  • Access to two lessons from courses that are part of the Senior Professional in Supply Management® Program
  • A Certification & Training Planning Template
  • Case studies
  • A free Basic Membership in the NLPA

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