Procurement Cost Savings
Total savings achieved through negotiation or sourcing vs. prior contracts or budgets
What is Procurement Cost Savings?
Procurement cost savings is the money saved by buying at a lower price than before. It shows the financial value of procurement work.
Savings measures help show the return on procurement activity, but need care to be credible to finance.
How this KPI is measured
- Function
- Operations & Supply Chain
- Sub-function
- Procurement
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- $
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Prior contract price − New contract price) × Volume
How to calculate it
Subtract the new contract price from the prior contract price and multiply by the volume.
For example, if a part fell from 10 to 9 and 100,000 were bought, the saving is (10 - 9) x 100,000 = 100,000.
Agree with finance how savings are defined and counted, for example excluding savings from lower volume, and report cost avoidance separately from real savings.
Where it is used
Showing procurement value
Report savings.
Setting targets
Plan savings goals.
Prioritising categories
Focus effort.
How to improve it
Tips and common mistakes
- Separate real savings from cost avoidance.
- Include quality and total cost, not just price.
- Check that savings appear in the accounts.
More Operations & Supply Chain kpi library
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