Savings Target Management – An essential guide for procurement savings
Savings target management is the need of the hour. The golden KPI for all procurement teams is savings. Savings reflect not only bottom-line results and improves profitability but also shows operational and strategic efficiency.
When an organization ‘A’ saves 15% of costs vs. ‘B’ that saves 25% cost over the previous year, it’s usually the company B’s of the world that defines lean process flows standards.
Savings is a journey, not an endpoint. Therefore, it starts with careful planning and analyzing all available data points. Additionally, saving objectives need to be carefully set after analyzing past spend across categories, baseline, profit, and revenue targets, and other external factors.
Savings Targets- Embarking the Sourcing Journey
The starting point of any journey is setting the itinerary or, as in business terms – the scope and objective of a particular savings project. Therefore, like every traveler, scanning the map for intended checkpoints, organizations need to map internal units. Therefore, these units will serve as parameters to define the savings goals. Some examples are –
|Logistics||South Asia||Category manager|
Here’s the tricky part, choosing the right vehicle to reach the goal. Selected parameters have to work in synergy (combination) to achieve real savings.
Here is an example –
Each unit has a combination of targets to be achieved in the set parameters. Some other key factors for setting savings targets are-
- Frequency of targets – Monthly, Quarterly, and Yearly
- Type of savings targets – Potential, Realized, Negotiated, and Actual
- Saving stages
Organizations need flexibility and agility to model such savings and link them to the overall target. Hence, it requires advanced savings target management.
“Tracking” towards the summit: Savings Target Reporting
Every mountain scaler will tell you the top of the mountain is alluring, but it is essential to keep looking behind to check the tracks; the same goes for achieving saving goals. Organizations need to keep a check on performance, identify shortfalls, and correct course whenever required.
The internal stakeholders have to cover various touch-points and need visibility into all relevant variables. Who are these stakeholders?
Stakeholders and KPI to track
|C-suite||Divisional Heads||Category Managers|
|Overall savings||Overall Divisional savings (Geo, BU, etc)||Category and commodity savings|
The important aspects of tracking are:
Savings across stages –
Since savings are set across stages among projects, it is essential to have full visibility into gaps and shortfalls. Therefore category managers need to track this diligently. Furthermore, this will ensure that savings are translated from previous stages to the next without any value loss. Therefore, visual and intuitive bar graphs can help to map this.
In figure 1, stages are represented by bars. Blue shows forecast savings while the Green part of the bar shows the actual savings against the yellow line, signifying the target. For example- In stage 1, the target is ~$2319 vs. $1987 real savings.
Savings target mix –
The combinations of parameters define essential strengths; various heads need to have a holistic view of these combinations—Division x Category, Category x Heads, Head x Division.
Therefore, by using tabular 2×2 matrix, this indicator can be easily mapped.
In figure 2, on the left, all divisions are listed vertically, and commodities are listed horizontally. For example- In West Aliya, the value of the savings is $2.265 million for commodity 2. Also, the percentage figure in brackets shows the progress as % of the savings target for the particular combination.
Past trends –
The best benchmark is past year’s results because this benchmark normalizes all seasonality a specific business goes through. All users need to compare past trends with existing results at a point in time. Hence, this is essential to identify gaps and take corrective action.
Therefore, comparative bar graphs can help map this indicator.
Figure 3, Financial year is chosen from the drop-down, is displayed in the cart and current year savings value month wise. The cart displays forecast, actual savings, and savings targets in blue, green, and yellow lines. For example- July 2020 real savings exceed 2019 real savings.
Saving target management is an essential discipline to ensure savings goals are met. Stakeholders need strategic bandwidth as well as technological support to master this.
Zycus iSave comprehensive savings target management supports the flexibility to create targets for various combinations of parameters and has granular insight into real-time progress.
To Request a demo, you can reach out to us at Product.email@example.com or visit our page at https://www.zycus.com/solution/procurement-finance-collaboration.html
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