The CPO outlines the current position and targeted savings they are working towards:
- $1.7M savings by increasing on-contract buying from 65% to 85% (20 percentage points) by making them fully visible to all buyers at purchase time
- $400,000 savings by using improved contract visibility to consolidate duplicate contracts and gain higher volume discounts
- $200,000 savings by preventing incorrect prices on POs (e.g. failure to use quantity price breaks)
CFO: “Based on a review of current contract activity we’ve done together, we’ve identified additional ways we can save as well…”
CFO: “Here’s our estimate of avoidable expenses we could achieve:”
- $250,000 approximate savings by avoiding automatic renewal of contracts without re-negotiation, and in some cases, contracts we don’t even want to continue (e.g. maintenance agreements)
- $50,000 approximate savings from reduced manpower required to handle contracts (e.g. manual authoring, filing, creating time-based payments, monitoring for review, etc.)
That’s another $300,000 savings a year from better, more efficient management of contracts within Procurement.
CEO: “So let’s recap what you’ve told me…”
CPO & CFO: “Here’s the summary:”
- $2.3M through increased on-contract buying and better compliance with contract terms
- $300,000 through avoidance of unwanted automatic contract renewals and elimination of non value-added manual contract administrative manpower – 1 FTE.
That’s a total of about $2.6M a year.