An Analytic Tool for Predicting Corporate Purchasing to Predict Cost Savings or Increase for Commodity Categories.

1. Corporate Purchasing Cost
Savings Forecast Tool
An Analytic Tool for Predicting Cost For Corporate Purchasing
Commodity Categories
Discussion Notes Asia Purchasing Conference
Manila Philippines
Bill Kohnen June 2014

2. Summary
• Professional Corporate Purchasing Departments manage total spend by assigning
it to a Spend Category and with further description within the category.
• Within each category there can be variation in cost savings potential
• Projecting potential costs can be time consuming but is important for goal setting
and resource allocation.
• To expedite the process the following tool has been developed based on
proprietary data, industry benchmarks and experience
• This open version is very accurate and useful – Industry Specific proprietary
models are available or can be developed.
• It is a framework for analysis with the real value coming from input by Purchasing
Professional's with specific category expertise.
Bill Kohnen June 2014

3. Overview of Tool
• Number of Suppliers
• Interchangeability of Products or
Services
• Business Conditions of Supplier
• Business Conditions of Buyer
• Influence of Other Groups at
Buyer
• Perceived Importance to Buyer
• Scope of Requirements
• Perceived Sunk Costs
• Actual Cost to Change
• Potential Optional Approaches
• Qualified Options
• Available Disruptive Options
• Cost of Alternatives
• Final Score of options Indicates
Potential for Savings or Increase
• A Professional Purchasing
Commodity Manager Should be
able to Complete the Initial
Scoring on their Own
• For Large Organizations Can have
Each Site Complete then Review
and revise at Global Category
Workshops
Bill Kohnen June 2014
Areas to Consider

4. Category Score
Number Suppliers: 1 literally one supplier 10 is unlimited #
Interchangeability of products or service: 1 is Unique 10 complete interchangeability
Business Conditions Supplier: 1 is Growing, market Leader, Customers approaching them
10 Losing share problems with product industry in down cycle
Business Conditions Buyer: 1 Losing share problems with product industry in down cycle
10 Growing, market Leader, Customer approaching them
Influence other Groups: 1 Completely uncontrolled with decisions based on influence
10 Decision making completely objective and impartial
Perceived Importance to Buyer: 1 High 10 Low
Scope of Buyer Requirement: 1 is at a single local site 10 Global Multisite Usage
Perceived Sunk costs with current supplier: 1 high 10 None
Perceived cost to switch: 1 More than Annual total spend 10 No cost to change
Potential optional approach's: 1 is no options 10 is unlimited
Qualified optional approaches: 1 is no other qualified 10 in unlimited
Cost relative to current of options 1 is higher 5 equal cost 10 zero cost
Disruptive technology of competitors 1 No new technology 10 Multiple available in Market
Score
Bill Kohnen June 2014
Rating Template

5. Bill Kohnen June 2014

6. Output Format For Individual Category
Bill Kohnen June 2014

7. Sample Dashboard
2014 Semiconductor Commodity
Bill Kohnen June 2014

8. Conclusions
• Tool is meant to give guidance for corporate
purchasing cost savings forecast
• Focus should be on methodology
• Scoring interpretations based on public and
proprietary benchmarks
• However – Purchasing professionals can and
SHOULD modify interpretations based on specific
categories and markets
• Will provide Live beta version of Tool at no cost to
conference attendees.
Bill Kohnen June 2014

9. Another View Results
Bill Kohnen June 2014
Score 13 26 39 52 65 78 91 104 117 130
Potential
Reduction 0% 1% 2% 3% 5% 6% 7% 10% 15% 50%
Potential
Increase 20% 15% 10% 5% 0% 0% 0% 0% 0% 0%
0%
10%
20%
30%
40%
50%
60%
13 26 39 52 65 78 91 104 117 130Score
Potential Commodity Savings or Increase
Potential Reduction
Potential Increase