As the year speeds to a close, many procurement departments grapple with meeting their savings targets. Continuing to battle on ever-changing terrain, procurement leaders must ensure that every dollar saved is recognized and accounted for. Even mature procurement organizations should review for untapped or unmeasured savings. This list of ways to unlock hidden hard dollar savings should serve as a reference to maximize the value the procurement organization not only produces but gets credit for.

8 Ways to Unlock Hidden Hard Dollar Savings Before Year End

1.  Incomplete Documentation: Savings might have been negotiated and contracted but not formally documented, leading to inaccurate tallies. This is common for smaller and/or quick projects that get a different focus than larger or more critical projects.

What to do: Analyze your spend and look for spends trending downward despite an expectation that usage may be the same or even increasing. This inconsistency may be due to utilizing a supplier offering products or services across many categories, including one you sourced. Make sure you’re accounting for savings that may be realized outside of the core items or services that you focused your sourcing efforts upon.

2.  Supplier Discounts Not Applied: Suppliers may offer discounts such as early payment, bulk purchase, or loyalty discounts or rebates. If these are not validated and suppliers fail to correctly apply them during billing, you will not capture these additional savings elements.

What to do: If you do not have a process in place for validating savings -especially when they’re deferred until a later date- make sure to get the fundamentals down in terms of who is responsible, when they should track, how to validate, and who approves the review process. Do not let the absence of a more mature approach and toolset prevent you from laying the groundwork to put these things in place later.

3.  Miscalculations in Currency Conversions: For organizations dealing with multiple currencies, miscalculations or outdated exchange rates might cause discrepancies in savings.

What to do: Ensure you understand your organization’s currency conversion process, including when the conversion rate is applied to the transaction and where the rate comes from. Spot-check some of your more significant international transactions by looking up the historical rate and verifying it against the rate applied. If there is a discrepancy, then delve further into the transactions.

4.  Lack of Tracking Standardized Purchases: Savings achieved through standardizing products or services might not be immediately evident and, if not tracked properly, might not be included.

What to do: Examine your spend in categories with significant negotiated discounts. Look for non-PO spend that may have utilized the negotiated price but was not included in your calculations. In some cases, these purchases may be on P-Cards or expense reports.   Ideally, your process will capture 100% of the savings you’re tracking, but applying the Pareto Principle is an excellent place to start.

5.  Change in Contractual Terms: During a contract, terms might be renegotiated for various reasons. You might miss the savings if these changes aren’t updated in your tracking process.

What to do: Meet with your procurement team members and stakeholders, who may negotiate with suppliers and discuss any mid-period contractual changes. If a contract was renegotiated, examine the subsequent purchases to ensure the proper terms and pricing were applied.

6. Inefficient Spend Analysis Tools: Bad data inputs, incomplete spend classification, ineffective spend taxonomies, or errors in manual spreadsheets can lead to inaccurate savings calculations.

What to do: If your organization manually calculates savings in spreadsheets, ensure you have a good process for validating the data is accurate and consistent. Eliminate as much potential for human error as possible via Excel’s built-in tools and review the data in data entry errors wherever this is not possible. If you utilize a spend analytics tool, review the uncategorized spend and look for transactions that should be categorized and included in your savings calculations. This will help track savings and also give you more precise insight into future spend management.

7. Delayed Invoicing: If suppliers invoice late or in irregular patterns, it can lead to discrepancies in capturing savings within a specific accounting period.

What to do: Verify that invoices were properly accounted for in the proper accounting period, especially towards the fiscal year-end.

8. Overlooked Negotiated Services: Occasionally, suppliers might throw in additional services at no extra cost as part of negotiations. While these can translate to hard dollar savings, they might be overlooked if not quantified.

What to do: Look for $0 line items on invoices and account for the standard service cost. Also, work with stakeholders to determine if a free service has been provided and not included on an invoice. Quantify how often this occurs and include it in your savings calculations. You may need to include manual entries in your savings tracking if the supplier needs to provide documentation of the included services.

In procurement, ensuring that every dollar procurement saved is accounted for is not just best practice—it’s essential for maximizing the efficiency and profitability of an organization and meeting your savings targets. Yet, as we’ve explored, various pitfalls can cause significant savings to go unnoticed. Recognizing these challenges is the first step, but the journey doesn’t end there.

Stay tuned for our upcoming insight, where we will delve deeper into proactive strategies to avoid these savings gaps next year.

At Velocity Procurement, our commitment is to help organizations identify and claim those elusive savings before the year ends. By optimizing people, processes, and technology, we’re here to ensure that your organization is poised to not only identify these gaps but to close them effectively in the coming years and maximize realized savings. Together, let’s transform challenges into opportunities and drive forward with precision and confidence.

Do you want to learn more about unlocking hidden hard dollar savings before the year’s end? Contact us today!