Savings Strategy Development, A Review Part II

To hit home my point that I believe the online course Savings Strategy Development from Next Level Purchasing is worth the time and investment for a purchasing professional looking to advance her knowledge and career, with kind permission, I am going to dive into a few topics covered in the course that I believe hit home on the importance of a good savings strategy and a well designed course to help you develop one.

The course begins by noting that saving money is arguably the #1 reason for the purchasing profession. Businesses exist to make profit, and that happens when the bottom line is improved. There are two ways to do that. Increase revenue or decrease expenses. Effective purchasing decreases expenses, particularly in terms of cost of products sold or selling, general, and administrative expenses.

The first lesson then goes on to define seven types of savings, including the well understood hard-dollar, the moderately realized but hard-to-calculate payment term savings, and the less common alternate condition savings. It lays out clear calculations for each of these. For example, the proper way to calculate payment term savings, which results when more favorable payment terms are negotiated, as defined in the course, is:

{(New Discount – Old Discount) – [(Old Window – New Window) * (Money Cost/365)]} * Spend


  • New Discount : new discount rate offered by the supplier
  • Old Discount : old discount rate offered by the supplier
  • New Window : new number of days in which payment is due
  • Old Window : old number of days in which payment is due
  • Money Cost : annual cost of money
  • Spend : spend on products and/or services to which the new discount applies

It then clearly defines the difference between quick hit, supplier relationship, and strategic sourcing savings opportunities and defines a methodology for determining what type of opportunity a category represents. It also defines the basic strategies that should be considered for each savings opportunity. For example, a quick hit opportunity generally implies the use of competitive bidding from pre-qualified suppliers who have already accepted a contract template.

Of course, the crux of the course is the ten phase approach to world class sourcing which should be applied as a starting template each and every time you start planning your sourcing – and savings – strategy for a strategic sourcing opportunity. And unlike some approaches that you will discover reading through materials you will find on the web, which tend to focus on the technology and not the core underlying process, it includes due emphasis on a current baseline analysis (phase 2), market survey (phase 4), and success measurement (phase 9). After all, without a baseline, you will not be able to measure your success, which is key to establishing your worth, and that of your department and profession, as a procurement professional, and without a decent understanding of the market, it will be hard to determine reasonable goals, objectives, and the magnitude of your success. (A price concession in a tight market where suppliers generally have more bargaining power is a bigger win than a price concession in an open market where supply exceeds demand and suppliers have little bargaining power.)

I hope this gives you some more insight into the importance of continued education and appropriate courses for your development and why I believe Savings Strategy Development from Next Level Purchasing is most likely worth your time and investment as a procurement professional.