One of the challenges that every sourcing organization deals with is the reporting of their progress. In many organizations this becomes a battle between realized and negotiated savings. Realized savings are reductions in expenses that impact the P&L positively. Negotiated savings focus on price reduction based on historical and or forecasted spend. Negotiated savings may not result in a positive impact to the P&L. Why? Buyers may decide that if a product or service is cheaper they can buy more (demand increase). Buyers may move up the performance, quality or luxury scale to maintain the same cost level while receiving more value (value increase).

Sourcing professionals understandably do not want to be held accountable for changes in buyer behavior. Accountants want to balance the costs of sourcing with the benefits. What is the solution? The solution is to provide a composite savings measure that is self-reinforcing. Our clients use negotiated savings as the opportunity and the realized savings as the actual. This composite metric is owned by the Procurement Group and the operating organizations. By working toward the common goal in a supported framework, you will see increased profits and happy accountants.

Good Sourcing!