PurchTips - Edition # 127

 

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Picture of Charles Dominick, SPSM, SPSM2, SPSM3

Cost Savings Reports: Why Some Are Weak

By Charles Dominick, SPSM, SPSM2, SPSM3

Do Your Cost Savings Reports Have These Problems?

Cost savings is the most common performance metric executives use to evaluate their purchasing departments. So it's critical to have strong cost savings reports.

Today, we'll examine three problems found in weak cost savings reports. Evaluate your approach and try to avoid having these problems with your cost savings reports.

Problem #1: Using An Incorrect Baseline. Cost savings are calculated as the quantity to be purchased multiplied by the difference between the price you will pay and some higher baseline price. Make sure that your company's executives agree with the baseline you use. Picking a high but not credible baseline (e.g., the highest bid received) may maximize your cost savings calculation but hurt your credibility with those executives.

Problem #2: Using Poor Quantity Estimates. Because the price you will pay is lower than the baseline price, your cost savings total grows as you purchase more. You may report a certain cost savings value based on quantity estimates. But what if you only end up buying half of that quantity? That's right – your actual cost savings will be half of your estimated cost savings. When you estimate your cost savings to executives, they expect the company to realize the cost savings you estimate. If the cost savings realized is less than your estimate, you won't be their favorite employee!

Problem #3: Failing To Adjust Budgets. To executives, "cost savings" is synonymous with "profit improvement." When you say that you will save $500,000 this year, they expect profits to be that much higher. So let's say that you achieve cost savings of $500,000 for a department within the company. Where does that $500,000 go? Does it free up money that they can spend on other things that they hadn't budgeted for? If so, then your "cost savings" is not really a "profit improvement." The company is still incurring the same amount of expenses. To truly improve profit, an amount equal to cost savings must be removed from the budget. Purchasing obviously can't do this alone, but working with senior management in this respect can certainly help executives see the value of intelligent purchasing.

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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:

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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:

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