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Financial Savings Management
With fear of double dip recession in the US and rising sovereign debt in Europe
, organizations all over the world fear drop in demand, which in turn has a direct bearing on the bottom line (profits) of organizations.Similar to the 2008 recession, organizations today are looking at procurement as a means of cost cutting among other functions like sales & marketing. The recession saw procurement emerge as a key saviour of organizations around the world by delivering on the crucial savings for organizations.
Procurement was able to achieve this feat by leveraging on a number of procurement automation technologies. Automation of procurement processes has ensured that organizations have streamlined their procurement processes, leading to a number of benefits for the organizations on the whole.
In this article we will be discussing how procurement can track the impact of the savings generated on organizations bottom line, through spend analysis & financial savings management tools.
The first step towards identifying savings opportunities is to have a clean & accurate source of data. Spend Analysis solution help organizations extract and collate spend data, analyze it and use it for reporting trends and opportunities. In short spend analysis provides an organization with the Potential Savings Opportunity from their purchasing activities.
Identifying the potential savings opportunity is just the first step in realizing the savings and knowing its impact on the bottom line. Having identified the savings opportunity, procurement team starts acting on these through its sourcing and contracting stages. Savings thus moves from the following stages: Potential savings, Targeted savings, Negotiated savings, Implemented savings and Realized savings.
Financial Savings Management helps procurement and finance team to track the journey of these savings through the different stages as mentioned above. More than tracking it also helps in categorizing savings based on its impact on the bottom line. Some of the savings concerned with direct reduction in Cost of Goods Sold will have the impact on the income statement, while other initiatives like savings generated through inventory management will have an impact on the balance sheet.
Tracking of savings at different stages brings in accountability of stakeholders managing the process and hence in a way prevents savings leakage which often used to remain unaccounted for. Knowing the impact of the savings generated on the bottom line also helps finance professionals to manage the process of budget allocation in a transparent manner.
Financial Savings management thus helps procurement and finance professionals to track the journey of savings from the potential stage to the realized stage along with its impact on the bottom line.
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