Cost Savings: Tips For Reporting Them

PurchTips - Edition # 118 January 23, 2007

By Charles Dominick, SPSM

Are You Optimally Recording Your Cost Savings

One of the most important practices in demonstrating Purchasing’s value to the organization is tracking and reporting cost savings. When you achieve cost savings, there is important data you should log, such as:

• Date
• Description of Product or Service
• Baseline Price
• Type of Baseline or Type of Savings
• Current Price
• Quantity
• Cost Savings
• Buyer
• Supplier
• Cost Center
• Category or Commodity

Allow me to elaborate on some of these items…

Baseline Price. Cost savings is the difference between your current price and a higher price, called a baseline.

Type of Baseline or Type of Savings. Baselines may include last year’s price, originally proposed price, cost to produce internally, etc. The baseline may determine whether management deems the impact an avoidance or cost savings and may only be interested in the latter.

Cost Savings. This field should be automatically calculated by multiplying the quantity by the difference between the baseline price and the current price.

Cost Center. Reporting your cost savings by cost center helps Purchasing demonstrate the positive impact it made on a specific department’s budget.

Here are three more tips for recording cost savings:

1. Record Price Increases, Too. Reporting “net” cost savings will better match your reports to financial statements, making your reports more believable.
2. Use A Database Not A Spreadsheet. Databases allow you to create separate tables for certain fields and, therefore, select from lists that will ensure the integrity of the data and make it easier to aggregate.
3. Use Actual Quantities. While estimated quantities save you the work of having to routinely update the cost savings log, estimated quantities usually vary from actual quantities, which can damage the integrity of your cost savings report if upper management scrutinizes it.

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