All supply chain leaders are looking for the edge to increase their price savings, therefore, most believe that by joining a regional GPO they can meet this objective. However, there could be three better, quicker, and more sustainable ways to increase your price savings that we would like to share with you as follows:
1. Validate Savings: It has been our empirical experience that 46% of all contract savings are understated because things change and people change during the term of every contract. For instance, you reported a projected savings of $12,000 over the term of a commodity contract, when in reality your actual savings on this contract at the end of its term was $23,000. Consequently, you shortchanged yourself $11,000 in reported savings to your management. By validating all of your contract savings quarterly and at the end of your contract term, you can easily increase your savings by a factor of two.
2. Guaranteed Savings: Most supply chain leaders don’t require that guaranteed savings be built into their contracts, yet by doing so you can be assured that you are getting the savings you were promised. We can make this statement since we have observed that 23% of those promised savings never happen. Again, through validation you can hold your vendor’s feet to the fire and achieve 100% of promised contract savings.
3. Automate Savings: Frequently, when reading our clients’ savings reports for multiple years, as a byproduct of our Strategic Value Analysis Planning process, we discover that their manually updated savings spreadsheets are missing significate savings. Therefore, we recommend to our clients that they automate their savings reporting to capture all, not just some, of their reported savings.
As it gets more difficult to achieve new price savings of significance, it is mission critical that we squeeze even more savings out of our supply chain expenses. The easiest way to do so is to capture and report 100% of our price savings reliably, factually, and accurately. Through validation, you can easily make this happen.