I hope that you enjoyed the article, “Avoiding Procurement Savings Disputes.”
This article covered one reason why finance executives can’t “see” procurement savings on financial statements: they depreciate the cost of a capital purchase over a period of years while the procurement department claims its cost savings all in one year. That claimed savings may even exceed the amount of depreciation expensed for the asset purchased!
Well, of course, that’s not the only reason that procurement savings are disputed. Other reasons include (but are not limited to):
- The procurement department will claim life-of-contract savings in the year the contract was signed, not over the term of the contract
- The procurement department will claim cost savings using a baseline that is something other than the last fiscal year’s average price paid
- The procurement department will claim as savings things that are more properly referred to as “offsets,” as described in my book, The Procurement Game Plan
- The procurement department fails to report cost increases. Cost increases are factored into financial statements, so not including them in a cost performance reporting calculation is going to result in a mismatch that will be noticed by all but the most careless finance executives!
I am proud that the Next Level Purchasing Association has firmly established itself over the past several years as the undisputed leader in procurement-finance collaboration. Whether it be through our free purchasing articles on cost savings reporting and related topics, the aforementioned book, or our series of online courses entitled “Finance For Strategic Procurement,” we have shown procurement professionals how to partner with finance professionals, rather than being the adversaries that they have traditionally been.
To Your Career Success,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer – Next Level Purchasing Association
Author – The Procurement Game Plan
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