Savings is something that helps you to overcome unfortunate events and also protects you from any kind of loss. The types and ways of Savings vary with respect to the reason, such as if you are Savings for personal reasons then it will differ in type, way, and application than the Savings that you are doing for business. Here I am mentioning some effective types of Savings that can help you increase your profits:
The Average Savings from Previous to Current Year:
Any change in the price or cost for a said year in comparison with the next or previous year is called the previous year Savings. You need previous Savings reporting data and renewals to track the Savings record. To calculate it, you need to compare the average price of the previous years with the price you are bearing in the current year. Here you will get some accurate figures these figures are martial price variance or MVP.
Assumed VS actual Budget Savings:
You know that budgeting is the process used in procurement project management in order to estimate the Savings rate for a specific year. Objects, financial tracks, prices, spending, revenues, and cost here is estimated and based on this estimation, a Savings amount is forecasted. Now the difference between the forecasted amount and the actual Savings is known as the budget Savings. This Savings reporting helps you make future planning based on the estimations.
Here in this type of Savings, the risk is involved and there are estimated differences in the cost or spending i.e. is tracked for tracking Savings and offer accurate Savings reporting. Suppose that the price of some material has increased hence, it will increase the procurement cost and will decrease the procurement Savings. Now to overcome the situation, Procurement Project Management heads shift from one expensive material to another low priced substituted material, for example using metal instead of steel.
RFP / Requested for Proposal Savings:
RFP stands for request for proposal. For this type of Savings a company, management sends proposals, reports, and bids to some external sources. Like propping ideas to the potential vendors for desired service solution. For example, bidding to a company to get an eSourcing Tool, or sourcing software solution for tracking Savings, or Savings reporting. This type of Savings is achieved in a systematic way and requires to go through a negations process.
Index based Savings:
Index based Savings are Savings that are earned through cost avoidance. Which means, you can shift from one form of material to another that’s substitute for the former and is available in low price. This is also required to examine the market to figure out any change in the price. Procurement is not responsible for such type of Savings because these Savings are dependent upon the market situation and hence it is not in the hand of the procurement project management team.
Mixed Savings are those sorts of Savings which are achieved by a combination of avoiding the increased cost and by decreasing the cost. Such as shifting from raw material to another or making negotiated contracts with the vendors. Hence the amount that’s saved by using both the techniques is known as the mixed Savings.
The scope of Profit by Looking and Savings Reporting:
Hence if from the above discussion you want to figure out the scope of profit by looking and Savings reporting generated through the above-mentioned Savings types then you will find some mixed results. For example, The Average Savings from Previous to Current Year, Assumed VS actual Budget Savings and speculated Savings, all three types can be achieved by opting cost reduction technique. When the cost will be reduced the ratio for procurement Savings will be increased hence the more Savings means the profit has overall been increased.
Besides this, if we focus on the latter two types such as RFP Savings and Index Savings then these both are achievable by avoiding any increase in the cost. Hence, in order to achieve this type of Savings, you need to avoid any further or more cost which is affecting the profit. This Savings type is not in the hand of procurement project management team because everything here is dependent upon the market situation such as, there can be materials which are available in less price today but tomorrow their price will be increased. However, by taking measures such as making rational decisions, the market situation can be made less impacting on the Savings.
Lastly, there is a Ratio Savings which is a combination of cost avoidance and cost reduction. Such as, here the Savings is achieved by reducing the cost of the project and also by avoiding any increased prices.
How to Generate Savings Reports:
Here, in order to identify what sorts of Savings you should opt is dependent upon the market situation and nature of your business. However, you require accurate Savings reporting in order to track your Savings record in a better way. For accurate Savings reporting, you can use procurement Savings tools such as eSorucing software, Savings tracking applications or hiring sourcing teams. These three types are very cost effective when it comes to Savings reporting because they automate the process of Savings the track. Which means you don’t need to have to sit in front of a calculator whole day, in fact, you will be able to track Savings even when you are on the go, because such software and apps can be accessed through different sorts of smart devices as long as they are attached to the internet.
In this article, we discussed the major sorts of Savings in comparison with the profit. We found that profit can be achieved either by avoiding the cost or by shifting from one entity to another substituted entity. Further, we discussed the scope of the Savings and how accurate Savings reports can be generated. esourcing tools are the best way to generate accurate Savings reports.