For the $1MM cost savings/cost avoidance target, here is my proposal on how to record how effective procurement is. Savings will start for Jan 1 2022 until Dec 31, 2023. Savings will be recorded for a year only. If the savings will be what is actually delivered (example – if savings start July 1, 2022, we would only get savings for 1/2)
I suggest we have 1 combined goal between the two.
Cost savings
per unit × units for the first vear.
o example: Current cost for Docusign is $10 a year per user, new cost per user with docusign is $8. The number of users is 1.000
– ($10-$8) * 1000 = $2,000 savings
Other units could be per computer, per BU
o Medium of first bid would be the basis and final item would be the
– Final bid with winner is $50K. Savings is $5K
Cost avoidance
If the supplier is raising prices, the basis will be what the new cost will be and what is negotiated is what is cost avoidance.
o example: Docusign’s cost per user goes up from $10 to $15 a user. We are able to negotiate the price to $11.
o Cost avoidance would be ($15-$14) * 1000 users = $1000
I need to make a excel chart on this.
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