# What is a Procurement Savings Calculation Methodology?

## Introduction

Procurement savings calculation is a process used by organizations to measure and quantify the impact of their spend management efforts. It allows companies to accurately calculate just how much money they are saving—or losing—through their procurement activities. This article will explain what a procurement savings calculation methodology is, and look at some of the benefits it can bring to your organization. We’ll also discuss why it’s important for businesses to understand and use this method when evaluating the performance of their procurement teams.

## What is a procurement savings calculation methodology?

A procurement savings calculation methodology is a process used to determine how much money a company can save by procuring goods and services. The procurement savings calculation methodology typically includes four steps:

1. Identify potential cost savings opportunities.
2. Analyze the opportunities to determine which are the most viable.
3. Create a plan to implement the selected opportunity.
4. Measure the results of the implementation to calculate the actualsavings achieved.

## How to calculate procurement savings

A procurement savings calculation methodology is a process used to determine how much money can be saved through procurement activities. There are a number of different ways to calculate procurement savings, but the most common method is to compare the total cost of goods or services before and after procuring them. This comparison can be done on a per-unit basis or on a total basis.

Another way to calculate procurement savings is to compare the price paid for goods or services with the market price. This approach can be useful if there is a wide variation in prices for similar goods or services. For example, if the market price for widgets is \$100 per unit and the company pays \$120 per unit for widgets, the company has saved \$20 per widget.

The most accurate way to calculate procurement savings is to use both methods – comparing the total cost before and after procuring, as well as comparing the prices paid with market prices. This approach provides the best estimate of how much money has been saved through procurement activities.

## Benefits of using a procurement savings calculation methodology

A procurement savings calculation methodology is a framework that organizations can use to estimate the potential cost savings from using a given procurement approach or sourcing strategy. The benefits of using a procurement savings calculation methodology include:

1. Increased accuracy in estimating cost savings: A well-designed calculation methodology can help organizations to accurately estimate the potential cost savings from using a given procurement approach. This, in turn, can help decision-makers to choose the approach that is most likely to generate the desired level of cost savings.

2. Improved clarity and transparency: A good calculation methodology should be clear and transparent, so that all stakeholders can understand how the potential savings have been estimated. This helps to build trust in the estimation process and ensures that everyone is aware of the factors that could impact the final saving figure.

3. Better understanding of key drivers of cost savings: By breaking down the saving estimate into its component parts, a calculation methodology can help organizations to better understand the key drivers of cost savings from using a particular procurement approach. This knowledge can be used to further improve future saving estimates and inform other aspects of the organization’s procurement strategy.

## Conclusion

In summary, a procurement savings calculation methodology is an approach to assessing and measuring the financial success of a particular procurement activity. It helps to determine the overall cost savings achieved through the use of specific strategies and processes. By using this type of method, organizations can effectively evaluate their purchasing practices in order to make improvements and achieve greater efficiency in terms of cost reduction. This type of analysis has become increasingly important as businesses strive to stay competitive while managing costs.