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Global Operations Supply Chain Indirect Sourcing Overview of Savings Management Standards Questions? Contact Ankush Lodha ( 502623426) Savings Finance Leader. Table of content. Introduction Implementation timeline Savings definitions & calculations Savings reporting

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  1. Global Operations Supply ChainIndirect SourcingOverview of Savings Management StandardsQuestions? Contact Ankush Lodha (502623426) Savings Finance Leader

  2. Table of content Introduction Implementation timeline Savings definitions & calculations Savings reporting Roles & responsibilities Worked examples

  3. Introduction

  4. Introduction Document Overview The objective of this document is to provide an overview of the new Savings Management Standard (“Savings Standard”) which will be applicable to all GE Businesses, their affiliates, and GGO regions. Savings Management Standard The Indirect Source-to-Buy Enterprise Standard provides guidance on the methods to calculate monetary savings arising from indirect sourcing activities. However, the current standard has been applied inconsistently, creating the need to revisit current guidance. Therefore a new Savings Standard is being published. The purpose of which is to promote consistency and accuracy of Savings managed and reported by the Indirect Sourcing function. It outlines the calculation principles, and defines the associated roles and responsibilities. Standard Operating Procedure The Savings Standard will be operationalized through a GE Standard Operating Procedure (“SOP”) which all GE businesses, affiliates, and GGO regions are expected to follow. Once issued, the Savings Standard and associated SOP will be subject to an annual review and validation.

  5. Savings Definitions & Calculations

  6. Savings Categories Category Components Financial treatment Deflation Price deflation/inflation Reconcile to ledger Usage Usage reduction Reconcile to ledger -a) New purchase Cost Avoidance Cost avoidance Inflation mitigation Cost Avoidance Rebates Track absolute cash amount Separate cash target for Rebates 1 2 Reconcile to ledger Cost Avoidance Year over year cost reduction driven by Sourcing. Savings align to income statement. P&L impact: Yes Reduction of spend that would have notoccurred without Sourcing’s involvement. • P&L impact: No (a- Savings recorded must have been driven by Sourcing

  7. 1 Reconcile to Ledger Savings that deliver year over year cost reductions achieved through lower price or usage attributed to the activities of the Sourcing function. Deflation = (CY averageprice-a) - Prior TY avgprice-a)) x CY annual volume Usage = (PY volume – CY volume) x PY average price These are the predominant formulas, please refer page 20-27 for more detailed examples • Guiding principles • Reported savings must be led by the Sourcing function. • Both inflationary and deflationary results of Sourcing activities must be recorded. • Savings must be a year over year impact to the P&L. • A baseline of 12-months spend must exist for deflation to be calculated. • Savings can only be recorded for a maximum 12 month period. • Sourcing savings from a business acquisition cannot be recorded until Year 2 until a clear GE baseline is established, the first year Savings will be cost avoidance. (a- Average price = total cost/total volume

  8. 2 Cost Avoidance Savings that would not normally have occurred without the Sourcing team’s activities. Generally on a new to GE purchase where no baseline exists. Savings = (Actual Price – Average price of all initial bids-a)) x CY annual volume These are the predominant formulas, please refer to page 28-31 for more detailed examples • Guiding principles • Reported savings must be led by the Sourcing function & be generated from activity such as: • The completion of a competitive bid process for a new purchase • The reduction of costs increases in an inflationary market (a- Any Bid 2x the lowest bid should only be counted at 2x the lowest bid

  9. Savings definitions

  10. Savings definitions

  11. Savings definitions

  12. Savings Reporting

  13. Savings reporting rules

  14. Roles and responsibilities

  15. Roles and responsibilities

  16. Roles and responsibilities

  17. Worked Examples

  18. Overview of Reconcile to ledger Rules (Current year avgprice- Prior TY avgprice) X Current year annual volume Price Deflation (Current year avgprice- Prior TY avgprice) X Current year annual volume Deflation Substitution Replacement Total X – Total Y Reconcile to ledger (Current year avgprice - Prior TY avgprice) X Current year annual volume Inflation Usage (Prior year volume – current year volume) X prior year unit price

  19. Deflation -1/2 • Scenario • Treatment • Scenario 1: YOY deflation • A negotiation has reduced the price of a laptop from $1200 to $1000. • Volume anticipated: 100 units per annum • Baseline Cost: 100 x $1200 = $120,000 Scenario 1: YOY deflation • Scenario 2: YOY deflation • A negotiation has reduced the price of a laptop from $1200 to $1000. • Vendor agreed 10% YOY deflation • Volume anticipated: 100 units per annum • Baseline Cost: 100 x $1200 = $120,000 Scenario 2: YOY deflation • Documentation: • CY and PY contract/ SOW/ amendment • CY and PY PO • Savings Calculation • 3 months invoice • For detailed document description, refer slides 30-34 Volume of units to be validated each year Savings in year 1 only since no YOY deflation Savings are permitted provided good/service does same function

  20. Deflation -2/2 • Scenario • Treatment • Scenario 3: Substitution • A decision has been made to substitute the current protective glass A with protective glass B. • Price of the protective glass A is $ 60 • Price of the protective glass B is $50 • Volume anticipated: 100 units • Baseline Cost: 100 x $60 = $6000 Scenario 3: Substitution Scenario 4: Replacement Changing a complete technology to achieve lower cost on expense (repetitive buy) Cutting tool A ($100 cost) uses 1000 pieces to machine 1 segment- total cost $100K. Cutting tool B ($80 cost) uses 500 pieces to machine 1 segment- total cost $40K. Moving from cutting tool A to B is causing total cost to reduce by $60K Any cost of change should be included in the calculation as a negative (new tool holders, new machine CAPEX cost) Scenario 4: Replacement Due to technology impact unit price is not comparable and should not be used as main factor for decision. Deflation calculation should be made on the variance of the total cost of both solutions. • Documentation • CY and PY contract/ SOW/ amendment • CY and PY PO • Communication/ Documentation substantiating change in process/ product and sourcing involvement • Savings Calculation • 3 months invoice • For detailed document description, refer slides 35-38

  21. Inflation – 1/2 • Scenario • Treatment Scenario 1: Netting Inflation from Deflation • Scenario 1: Netting Inflation from Deflation • A negotiation is completed for a transportation service across 15 lanes. • Lanes 1-10 see a price reduction from $1MM to $0.8MM per lane • Lanes 11-15 see a price increase from $1.2MM to $1.5MM per lane • Baseline Cost is $16MM • 10 lanes x $1MM = $10MM • 5 lanes x $1.2MM = $6MM • Documentation • CY and PY contract/ SOW/ amendment • CY and PY PO • Savings Calculation • 3 months invoice • For detailed document description, refer slides 39-40 Savings in year 1 only since no YOY deflation Net deflation of $500,000: variance between $2M & $1.5

  22. Inflation - 2/2 • Scenario • Treatment • Scenario 2: Inflation & Avoidance • A warehousing service contract is in place for $120 per annum with vendor A. • Vendor A issues a price increase to $200K at point of contract renewal. • RFQ is run: vendor A price remains at $200K; vendor B quotes: $150K, vendor C quotes: $180K, vendor D quotes: $210K • Supplier B is selected but agrees to $140K • Documentation • CY and PY contract/ SOW/ amendment • Bidding Summary • CY and PY PO • Savings Calculation • 3 months invoice • For detailed document description, refer slide 48 Scenario 2: Inflation & Avoidance • In this scenario both inflation & cost avoidance should be reported • Inflation: $140K final price vs $120K baseline cost • Cost avoidance should be the lower of the two : (1) price increase avoidance from current supplier (2)average of bids • Average bids rule: • (200+150+180+210)/4 = 185 average price • 185 minus 140 = $45k savings • Price increase avoidance from supplier A: 200 – 140 => 60K • Cost avoidance = min(45K, 60K) = 45K

  23. Usage • Scenario • Treatment The average number of pages printed by employees in a site is 300 a month. A new instruction issued by Sourcing team allows each employee to print max. 200 pages a month. The click charge per page is $0.1. Scenario 1: Permanent usage reduction Scenario 1: Permanent usage reduction The instruction will be effective in the future Savings in year 1 from the permanent usage reduction. Only include sourcing driven usage projects in the savings numbers. Scenario 2: Non-permanent usage reduction The instruction will be effective only for current year Scenario 2: Non-permanent usage reduction • Documentation • Documentation highlighting sourcing efforts for usage reduction • Savings Calculation • For detailed documentation description, please refer slides 43 to 45 Principle is to maintain a direct link to the income statement. The savings recorded for year 1 must then be recorded as negative amount in year 2. The table shows that the baseline was reduced to 20 but as the cost will increase, back to 30 therefore inflation of 10.

  24. T&L Saving Methodology Saving Rules Extract Data Calculate Savings Data Air (Prism) Extract PY & CY data Populate ATP on PY & CY data by country pair , cabin class, & GE Business 4. Populate industry/GE projection based on regions 5. Apply saving rules Is PY ATP available? N Y Deflation/Inflation: Calculation:(CY ATP –PY ATP)*actual volume Car/Hotel (T&L DWH) Is Industry Projection Inflation? N Extract PY & CY data Populate ATP on PY & CY data by country 3. Populate Regions based on trip destination 4. Populate industry/GE projection 5. Apply saving rules Y Inflation Avoidance: Calculation:(((CY ATP)-(PY ATP*(1+Industry Inflation projection)))*actual Volume a) New Purchase Avoidance: Calculation:(CY ATP)-(total OP or Budget or Avg price of all initial bids)*actual volume PY: Previous Year; CY: Current Year; ATP: Average Transaction price For air discount is available in Prisim data

  25. Overview of Cost avoidance Rules * Be applied in sequential order: Never purchase before Actual price - Total OP Plan or Budget Amount Actual Price – Average price of all initial bids New purchase Purchase skips one year Cost avoidance • Lower of the two: • Actual price – prior price *(1+ inflation%) • Actual Price – Average price of all bids Inflation mitigation

  26. New purchase • Scenario • Treatment Business A does a new purchase from vendor X and the final negotiated price is $100K Scenario 1: Budget exists Cost avoidance = $120k-$100K = $20K Scenario 1: Budget exists The budget for this project is $120K Scenario 2: No budget but a competitive bidding process Scenario 2: No budget but a competitive bidding process Three vendors quoted, X=$100K, Y =$120K, Z=$140K and X wins Cost avoidance = ($100K+$120K+$140K)/3 - $100K = $20K Scenario 3: No budget and only one available supplier Vendor X is the only supplier on the market and the Catalogue price is $130K before negotiation Scenario 3: No budget and only one available supplier No cost avoidance could be claimed, the negotiated price will be the baseline price • Documentation • Op Plan/ Budget • Bidding summary • Current year Contract/ SOW • CY PO • Savings Calculation • For detailed document description, refer slides 46-50

  27. Inflation mitigation • Scenario • Treatment GE pays $120K every year to supplier A for warehousing storage. Supplier A requested price increase to $200K yearly when renewing contract. Scenario 1: Positive cost avoidance with price inflation In this scenario, both price inflation and positive cost avoidance should be reported. Price inflation = $120K-$130K = $(10)K Price increase avoidance from supplier A: 200 – 120 => 80K Average of bids rule: (200+150+180+210)/4-130 = 185 – 130 =>55K Cost avoidance = min(80K, 55K)=55K Scenario 1: Positive cost avoidance with price inflation Supplier b, c, d quoted. b=150K, c=180K, d=210K Went with “b” (quoted original price of 150K, final negotiated price of 130K) Scenario 2: Price deflation from new supplier Supplier b, c, d quoted. b=150K, c=180K, d=210K Went with “b” (quoted original price of 150K, final negotiated price of 110K) Scenario 2: Price deflation from new supplier Price deflation = $120K-$110K=$10K Average of bids rule: (200+150+180+210)/4-110 = 185 – 110 =>75K Cost avoidance = min(80K, 75K)=75K Include Cost avoidance regardless of final price being inflationary or deflationary • Documentation • Op Plan/ Budget • Bidding summary • Current year Contract/ SOW • CY and PY PO • Savings Calculation • For detailed document description, refer slides 41, 51-53

  28. Overview of CAPEX (For certain commodities) Rules Repeat CAPEX Follow the Deflation rules CAPEX New CAPEX Follow the Cost avoidance rules

  29. CAPEX • Scenario • Treatment Scenario 1: Repeat CAPEX Scenario 1: Repeat CAPEX In Year 1, Business A purchased a software which cost $2MM for the business units in US. In Year 2, Business A purchased the same software which cost $1.8MM for the business units in Europe. CAPEX Savings = $2MM - $1.8MM = $200K Scenario 2: New CAPEX Scenario 2: New CAPEX Business A plans to purchase a new Software Supplier a, b, c quoted. a=150K, b=180K, c=210K Went with “a” (quoted original price of 150K, final negotiated price of 110K) CAPEX Savings = (150+180+210)/3-110= $70K

  30. Back-Up Documentation Examples

  31. Price Deflation Documentation -1/5 – IT • Scenario • Back up Documentation • Project owner to upload the following documents once savings are executed, for Sourcing review – • Previous year contract & amendments – The previous year’s rate of $ 1000 to be validated from contract/ amendment • Current year contract & amendments - The current year’s rate of $ 1200 to be validated from contract/ amendment • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – The invoices will be leveraged to validate actual volumes against savings calculation assumptions; and validate rate charged is per agreement • Scenario 1: YOY deflation • A negotiation has reduced the price of a laptop from $1200 to $1000. • Volume anticipated: 100 units per annum • Baseline Cost: 100 x $1200 = $120,000

  32. Price Deflation -2/5 - Facilities (Rental) • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract & amendments – The previous year’s rate of $ 1000 to be validated from contract/ amendment • Current year contract & amendments - The current year contract/ amendment to state annual deflation of 10% for 3 years • Savings calculation - Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 1 Months Invoice – The invoices will be leveraged to validate actual volumes rate charged against savings calculation assumptions and contract • Scenario 2: YOY deflation • A negotiation with supplier A has led to 10% YOY reduction in the rental for office premises for next 3 years. The rental for the previous year was $100K. • Baseline Cost: $100K

  33. Price Deflation -3/5 – Professional, Labor Services • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year SOW – The previous year’s rate of $10K to be validated from SOW • Current year SOW - The current year SOW to state professional fee as $90K for the same scope of services as compared to last year • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • 3 Months Invoice and signed PO – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per SOW • Scenario 2: YOY deflation • A negotiation with an auditing service providing vendor has led to 10K reduction in professional fees for audit. • Baseline Cost: $100K • OR • A negotiation with a vendor providing temporary employees service has led to 10K reduction in fees for the service. • Baseline Cost: $100K

  34. Price Deflation -4/5 – Logistics • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Negotiation Tool template - The template should include information related to volume, old rates, new rates and reviewed by GCL and business leaders, if reqd. • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement • Scenario 1: YOY deflation • A negotiation has reduced the price of warehouse storage contract from $1.2 MM to $1 MM.

  35. Price Deflation -5/5 – MRO • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract & amendment s– The previous year’s price of $50 to be validated from contract/ amendment • Current year contract & amendments- The current year’s price of $45 to be validated from contract/ amendment • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement • Scenario 1: YOY deflation • Supplier A has agreed to reduce the price of floor maintenance items from $50 a box to $45. The volume of items estimated to be purchased this year is 100,000 units.

  36. Deflation (Substitution) -1/3 – MRO • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract – The previous year’s rate of $ 60 for glass A from vendor X to be validated from contract • Current year contract - The current year’s rate of $ 50 for glass B from vendor Y to be validated from contract • Documentation/ Communication of change- Documentation, internal communication or commentary substantiating rationale of the change in product from A to B • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract • Scenario 3: Substitution • A decision has been made to substitute the current protective glass “A” from vendor X, with a new protective glass “B” from vendor Y • Price of protective glass A is $ 60 • Price of protective glass B is $50 • Volume anticipated: 100 units • Baseline Cost: 100 x $60 = $6000

  37. Deflation (Substitution) -2/3 – Prof, Labor Services • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year Contract & SOW – The previous year’s rate of $500K for auditing services to be validated from SOW • Current year Contract & SOW - The current year’s rate of $400K to be validated from SOW with same scope of services • Documentation/ Communication of change- Documentation, internal communication or commentary substantiating rationale of the change in company from A to B • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract • Scenario 3: Substitution • A decision has been made to substitute auditing service company from A to B resulting into reduction in audit services cost by $100K. • Baseline Cost: $500K • OR • A decision has been made to substitute security service company from A to B resulting into reduction in security services cost by $100K. • Baseline Cost: $500K

  38. Deflation (Substitution) -3/3 – Logistics • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Negotiation Tool template - The template should include information related to volume, old rates, new rates and reviewed by GCL and business leaders, if reqd. • Documentation/ Communication of change- Documentation, internal communication or commentary substantiating rationale of the change from product A to B • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract • Scenario 3: Substitution • A decision has been made to substitute warehousing contract service from A to B resulting into reduction in costs by 100K. • Baseline Cost: 500K

  39. Deflation (Replacement) -1/1MRO • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract/ amendment – The contract with the vendor for the purchase of cutting tool A • Current year contract/ amendment – The contract with the vendor for the purchase of cutting tool B, validating the purchase in the current year • Documentation/ Communication of change- Documentation, internal communication or commentary substantiating rationale of the change from product A to B • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Utilization report for first 3 months– To validate that utilization for pieces in machine 1 segment has reduced Scenario 4: Replacement Changing a complete technology to achieve lower cost on expense (repetitive buy) Cutting tool A ($100 cost) uses 1000 pieces to machine 1 segment- total cost $100K. Cutting tool B ($80 cost) uses 500 pieces to machine 1 segment- total cost $40K. Moving from cutting tool A to B is causing total cost to reduce by $60K Due to technology impact unit price is not comparable and should not be used as main factor for decision. Deflation calculation should be made on the variance of the total cost of both solutions.

  40. Netting Inflation from Deflation – 1/2 - Logistics • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Negotiation Tool template - The template should include information related to volume, old rates, new rates and reviewed by GCL and business leaders, if reqd. • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract • Scenario 1: Netting Inflation from Deflation • A negotiation is completed for a transportation service across 15 lanes. • Lanes 1-10 see a price reduction from $1MM to $0.8MM per lane • Lanes 11-15 see a price increase from $1.2MM to $1.5MM per lane • Baseline Cost is $16MM • 10 lanes x $1MM = $10MM • 5 lanes x $1.2MM = $6MM

  41. Netting Inflation from Deflation – 2/2 • Scenario • Back up Documentation • Scenario 1: Netting Inflation from Deflation • A negotiation is completed for two products as follows: • Product A sees a price reduction from $100 to $80 per unit. Expected volume is 1000 units • Product B sees a price increase from $ 70 to $ 80 per unit. Expected volume is 800 units • Baseline Cost is $156,000 • Product A - 1000 units x $100 = $100,000 • Product B – 800 units x $ 70 =$ 56000 • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract/ amendment – The previous year’s rate of $ 100 and $ 70 for products A and B respectively to be validated from contract • Current year contract/ amendment - The current year contract/ amendment to state prices as $ 80 each for both product A and B. • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract

  42. Deflation & Avoidance – 1/1 - MRO, Facilities, IT, Purchase service • Scenario • Back up Documentation • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract/ amendment/ SOW – The previous year’s rate of $ 120 to be validated • Bidding Summary – Bidding summary from Vendor A, B, C and D • Current year contract/ amendment/ SOW - The current year’s rate of $ 110 from Supplier B to be validated • Savings calculation- Document (excel, word etc.) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract MRO: GE pays $120K every year to supplier A for warehousing storage. Supplier A requested price increase to $200K yearly when renewing contract. OR Facilities: GE pays $120K every year to supplier A for janitorial services. Supplier A requested price increase to $200K yearly when renewing contract. OR IT & Telecom: GE pays $120K every year to supplier A for database and application management services. Supplier A requested price increase to $200K yearly when renewing contract. OR Purchased service: GE pays $120K every year to supplier A for legal services . Supplier A requested price increase to $200K yearly when renewing contract. Saving Calculation Price deflation = $120K-$110K=$10K Average of bids rule: (200+150+180+210)/4-110 = 185 – 110 =>75K Cost avoidance = min(80K, 75K)=75K Include Cost avoidance regardless of final price being inflationary or deflationary Supplier b, c, d quoted. b=150K, c=180K, d=210K Went with “b” (quoted original price of 150K, final negotiated price of 110K)

  43. Deflation/Avoidance – T&L – Air & Car • Scenario • Back up Documentation Deflation (Actual) Air The average fair for HC on Economy flights between USA & UK last year was &1350 round trip. The average fair for HC on Economy flights between USA & UK this year is 1250 round trip. The volume of flights this year for the above scenario is 900. Total savings= ($1350-$1250)*900 Car The average daily transaction cost to rent a car for HC in the US last year was $42/day. The average transaction cost to rent a car for HC in the US this year is $39/day. The volume of US rental days this year for HC is 5,000. $. Total savings = ($42-$39)*5,000 Avoidance (Actual) Air & Car ((Current Year Avg transaction Price)-(Past Year Avg transaction Price*(1+Industry Inflation projection)))*actual Volume • Project owner to upload the following documents once savings have been executed, for Sourcing & Finance review – • Advito Industry Forecast for Air, Car, or Hotel • Detailed calculation file by Business for Deflation and Avoidance • Air Source = PRISM • Car Source = Ammex

  44. Usage -1/1 • Scenario • Back up Documentation The average number of pages printed by employees in a site is 300 a month. A new instruction issued by Sourcing team allows each employee to print max. 200 pages a month. The click charge per page is $0.1. • Project owner to upload the following documents once savings have been executed, for Sourcing & Finance review – • Documentation/ Communication substantiating sourcing team efforts in increasing process efficiencies leading to usage reduction e.g. communication to employees on the change in policy. • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards.

  45. Avoidance - New purchase (Budget Exists) -1/2 - IT, Facilities, MRO • Scenario • Back up Documentation Facilities– A new purchase of office furniture from supplier A was finalized at $200K. The budgeted cost for the new purchase was $250K.  Savings calculation: Cost avoidance = $250K - $200K = $50K MRO A new purchase of forklifts from supplier A was finalized at $2,000 a forklift. The budgeted cost for the new purchase was $2500 a forklift. The number of forklifts to be purchased is 5. Cost avoidance = $12,500K - $10,000 = $2500 IT & Telecom A new purchase of software from supplier A was finalized at $200K. The budgeted cost for the new purchase was $250K. Cost avoidance = $250K - $200K = $50K • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Approved Op Plan/ Budget – Approved budget supported with business rationale such as market price analysis, quote from vendors etc. • Current year contract/ SOW - The current year contract/ amendment to state the final negotiated rate. • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract

  46. New purchase (Budget Exists) -2/2 - Utilities, Purchased services • Scenario • Back up Documentation Utilities- A new purchase of natural gas for a new site was closed at the rate of $20 per therm. The budgeted cost for the same was $25.The estimated consumption is calculated to be 1,000 therms. Purchased service- The budge for a purchase of new consulting service was $100K. After the negotiation with the vendor, the final price was agreed at $90K. Cost avoidance savings = $100K - $90K = $10K • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Approved Op Plan/ Budget – Approved budget supported with business rationale such as market price analysis, quote from vendors etc. • Current year contract/ SOW - The current year contract/ amendment to state the final negotiated rate. • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract

  47. New purchase (No budget but competitive bidding) – 1/2- MRO, IT, Facilities, Purchased Services • Scenario • Back up Documentation MRO Business A does a new purchase of forklifts from vendor X and the final negotiated price is $100K OR Purchase Service – Business A does a new purchase from Consulting Company X and the final negotiated price is $100K OR Facilities – Business A does a new purchase of office equipment from X and the final negotiated price is $100K OR IT & Telecom – Business A does a new purchase of laptops from X and the final negotiated price is $100K • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Bidding Summary – Bidding Summary of all bids received • Current year contract/ SOW - The current year contract/ amendment to state negotiated price as $ 100K • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract Three vendors quoted, X=$100K, Y =$120K, Z=$140K and X wins Saving Calculation Cost avoidance = ($100K+$120K+$140K)/3 - $100K = $20K

  48. New purchase (No budget but competitive bidding) – 2/ 2 - Utilities • Scenario • Back up Documentation • Utilities • Competitive bids were sought from 4 different suppliers for purchase of natural gas for a new site. The estimated consumption is calculated to be 1,000 therms. • The rates quoted by suppliers per therm are as follows: • Supplier A - $20 • Supplier B - $25 • Supplier C - $15 • Supplier D - $30K • Supplier C was selected. • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Bidding Summary – Bidding Summary of all bids received • Current year contract/ SOW - The current year contract/ amendment to state negotiated price as $ 100K • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract Saving Calculation Average of bids= ($20 + $25 + $ 30 + $15) / 4 = $22.5 Cost avoidance per therm = $22.5 - $15= $7.5 Total cost avoidance = $7.5*1000 = $7500

  49. New purchase (No budget and only one available supplier) • Scenario • Back up Documentation Vendor X is the only supplier on the market and the Catalogue price is $130K before negotiation No cost avoidance could be claimed, the negotiated price will be the baseline price

  50. Inflation & Avoidance – 1/3 – Utilities • Scenario • Back up Documentation $10 per therm of natural gas was being paid to supplier A. The supplier demanded a price increase to $30 at the time of contract renewal. The estimated consumption is 1,000 therms. Bids were sought from 3 other suppliers and the rates quoted by the suppliers are as follows: Supplier B- $22, supplier C- $15, Supplier D- $25 Supplier C was selected. Savings calculation: In this case, both price inflation and positive cost avoidance should be reported. Price inflation per therm = $10 - $15 = $(5) Total price inflation = $(5)*1000 = $(5000) Price increase avoidance from supplier A: $30 – $15 = $15 Average of bids rule: (22+25+30+15)/4-15 = 23 - 15 => $8 Cost avoidance per therm = min ($15, $8) = $8 Total cost avoidance = $8*1000 = $8000 • Project owner to upload the following documents once savings have been executed, for Sourcing review – • Previous year contract/ amendment/ Invoice– The previous year’s rate of $30 to be validated • Bidding Summary – Bidding summary from Vendor A, B, C and D • Current year contract/ amendment - The current year’s rate of $15 from Supplier C to be validated • Savings calculation- Document (excel, word etc) providing detailed savings calculation. This should be as per the established standards. • Additional documents to be uploaded once savings are realized, for Finance review - • Purchase Order (CY and PY): To validate current year and previous year volumes • 3 Months Invoice – To validate that the volumes are aligned to savings calculation & assumptions; and rate is charged as per agreement / contract

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