Answers to this question will range from $3 to minus $2 depending upon the organization that you work for. The truth is that if Procurement claims a saving of $3 but the budget holder sees that their budget is overspent by 2%, there will be a disconnect between Procurement and its stakeholders.

The way that Procurement practitioners calculate and claim savings is a fair indicator of the status they have within the business. Nothing is more likely to give Procurement a bad name than claiming credit for savings that don't translate into an impact on the budget. On the other hand, it is legitimate to claim that Procurement's intervention secured a cost avoidance of $3.

If Procurement had agreed to the new price but offset the impact by negotiating supplier funded consignment stock, longer payment terms or other sources of value to the business, then it is legitimate to claim that they made a difference.

The contribution of Procurement cannot be measured simply in terms of price savings because it will include other factors such as cost avoidance and even value or profit enhancement!

We need to see life through the eyes of our stakeholders. What really matters to the business...Price? Cost? Quality? Cycle time? Let's get our measures aligned to those of the business and see what happens.