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Need to formulate annual measurable KPIs to measure Cost saving & Cost avoidance Considering both Tangible and Intangible Savings which are related only to Procurement Dept. activities.
At first you must set target to your self by bench marking
for cost saving but estimated material price for your budget then at the end of ( quarter or semester or year ) compare your cost with estimated material price you but
You need to develop a benchmark and compare the performance against it
Benchmark need to be set up ---------------------------
I agree with jasmina malnar. There cannot be one fix for all and needs a detailed strategy.
That really depends on the category so it is hard to give one answer..
For items which you are purchasing on a regular (Annually) basis, should be compared with the (local inflation + international inflation) + Dollar parity (If are purchasing from international market). This is the way to measure the cost avoidance. For example; your purchase price for X-item is USD 10 in 2014. In 2015 the price is USD 10.2 and in 2016 the revised price is USD 10.3. Apply inflation rate of 2014 price and calculate the projected cost of 2016 (after applying inflation rates) and then compare it with the actual paid cost of 2016. The difference is the cost cost avoidance.
