Corporate Purchasing Cost Savings Forecast Tool

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An Analytic Tool for Predicting Corporate Purchasing to Predict Cost Savings or Increase for Commodity Categories.

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Corporate Purchasing Cost Savings Forecast Tool

  1. 1. Corporate Purchasing Cost Savings Forecast Tool An Analytic Tool for Predicting Cost For Corporate Purchasing Commodity Categories Discussion Notes Asia Purchasing Conference Manila Philippines Bill Kohnen June 2014
  2. 2. Summary • Professional Corporate Purchasing Departments manage total spend by assigning it to a Spend Category and with further description within the category. • Within each category there can be variation in cost savings potential • Projecting potential costs can be time consuming but is important for goal setting and resource allocation. • To expedite the process the following tool has been developed based on proprietary data, industry benchmarks and experience • This open version is very accurate and useful – Industry Specific proprietary models are available or can be developed. • It is a framework for analysis with the real value coming from input by Purchasing Professional's with specific category expertise. Bill Kohnen June 2014
  3. 3. Overview of Tool • Number of Suppliers • Interchangeability of Products or Services • Business Conditions of Supplier • Business Conditions of Buyer • Influence of Other Groups at Buyer • Perceived Importance to Buyer • Scope of Requirements • Perceived Sunk Costs • Actual Cost to Change • Potential Optional Approaches • Qualified Options • Available Disruptive Options • Cost of Alternatives • Final Score of options Indicates Potential for Savings or Increase • A Professional Purchasing Commodity Manager Should be able to Complete the Initial Scoring on their Own • For Large Organizations Can have Each Site Complete then Review and revise at Global Category Workshops Bill Kohnen June 2014 Areas to Consider
  4. 4. Category Score Number Suppliers: 1 literally one supplier 10 is unlimited # Interchangeability of products or service: 1 is Unique 10 complete interchangeability Business Conditions Supplier: 1 is Growing, market Leader, Customers approaching them 10 Losing share problems with product industry in down cycle Business Conditions Buyer: 1 Losing share problems with product industry in down cycle 10 Growing, market Leader, Customer approaching them Influence other Groups: 1 Completely uncontrolled with decisions based on influence 10 Decision making completely objective and impartial Perceived Importance to Buyer: 1 High 10 Low Scope of Buyer Requirement: 1 is at a single local site 10 Global Multisite Usage Perceived Sunk costs with current supplier: 1 high 10 None Perceived cost to switch: 1 More than Annual total spend 10 No cost to change Potential optional approach's: 1 is no options 10 is unlimited Qualified optional approaches: 1 is no other qualified 10 in unlimited Cost relative to current of options 1 is higher 5 equal cost 10 zero cost Disruptive technology of competitors 1 No new technology 10 Multiple available in Market Score Bill Kohnen June 2014 Rating Template
  5. 5. Bill Kohnen June 2014
  6. 6. Output Format For Individual Category Bill Kohnen June 2014
  7. 7. Sample Dashboard 2014 Semiconductor Commodity Bill Kohnen June 2014
  8. 8. Conclusions • Tool is meant to give guidance for corporate purchasing cost savings forecast • Focus should be on methodology • Scoring interpretations based on public and proprietary benchmarks • However – Purchasing professionals can and SHOULD modify interpretations based on specific categories and markets • Will provide Live beta version of Tool at no cost to conference attendees. Bill Kohnen June 2014
  9. 9. Another View Results Bill Kohnen June 2014 Score 13 26 39 52 65 78 91 104 117 130 Potential Reduction 0% 1% 2% 3% 5% 6% 7% 10% 15% 50% Potential Increase 20% 15% 10% 5% 0% 0% 0% 0% 0% 0% 0% 10% 20% 30% 40% 50% 60% 13 26 39 52 65 78 91 104 117 130Score Potential Commodity Savings or Increase Potential Reduction Potential Increase

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