Cost Savings Analysis
Just curious as to what savings calculators your company utilizes? I know they are several different formulas that are generally accepted, I'm just looking for real examples of what you are currently using.
We are currently using a average of bids. Which means we are combining all of the bids to get an average and then subtracting the low bid from that. It seems like an odd way to calculate savings, but that's what we doing currently.
Bid 1 = $100
Bid 2 = $150
Bid 3 = $125
Avg = $125 minus low bid (100) savings = $25
Any other suggestions?
Hi there, it is good but you can also start at a lower bid. Anyway, do you have savings? having a large chunk of cash in savings is always the very best thing to do so you can pay for any emergency situations that come your way. While you are working on building that money up, you may have emergencies still. Many people do not have the cash flow to put too much cash away anyway. When you have a crisis and need cash, you can use a pay day loan.
Cost Savings Calculations
There are various ways that you can calculate cost savings. You have to first determine if it is a hard, soft, or 3-bid cost savings. The only cost savings that impact your financial statements is the hard cost savings. Hard cost savings is only relevant if you have historical pricing data.
We consider cost savings if the savings are negotiated off of a proposed price.
In the past I have also utilized historical pricing, but this doesn't take into consideration market changes and could impact your true cost savings.
I imposed the same logic to our cost savings calculation.
Cost saving = average of Evaluated bid prices - Resulting Contract Price
Evaluated bid prices = adjusted bid price after clarifications, negotiations and risk assessment
Resulting Contract Price = negotiated final value with the recommended bidder.
It is based on the simple logic that bids are a reflection of market price for goods/services. This would not apply to fuel or vehicles or other commodities or services that published unit rates are readily available.
So, if the bids prices viewed as market prices, then the average of bid prices are deemed as the market price.
However, if commodity you are buying has a set market rate, such as MSRP for vehicle, than I would calculate cost savings from MSRP since without tendering or negotiations, that is the set price for the goods.
Hope I have clarified how I perceive cost savings in supply chain as deductions obtained from tendering process.
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