The Wrong Cost Savings Goal

The wrong cost savings goal is something along the lines of: Achieve cost savings of $400,000 this year. This is also what is generally expected from the finance people.

Novice purchasers often start out by replacing their old vendors with cheaper ones without considering the new suppliers' performance standards. This is unacceptable, and may end up reducing profits instead of increasing them.


The 21st century procurement professional must get the best price while evaluating and qualifying suppliers who will perform better than the incumbent. This means improving on-time delivery, material defect rates, internal customer satisfaction and supplier service levels in addition to getting a lower price.

Achieving cost savings does not not necessarily mean finding new suppliers. In a recovering economy, it is worth trying to renegotiate with current suppliers, simultaneously maintaining service levels while also getting a lower price.

The right cost savings goal should mention supplier performance in addition to cost savings.  One without the other will not result in a profitable outcome.

Adapted from: The Wrong Cost Savings Goal. http://bit.ly/cJhZXf