0 Replies Latest reply on Sep 13, 2010 2:08 PM by David Morel

    Savings Calculation? - A Question for the Community!

    David Morel Master

      Savings...how do you calculate it?  Depends...right?  It depends upon the context for sure.  What I am talking about in this discussion is in bidding events.  It is pretty straight forward when you are talking about a simple bidding event where the suppliers are putting in just a Price.

       

      Historical = $100

      Supplier 1(S1) Bid = 95

      Supplier 2(S2) Bid = 90

       

      Savings = Historical - Price

      S1 Savings 100-95 = $5

      S2 Savings 100-90 = $10

       

      That is pretty easy and how things work in the solution now, but what if we have a Total Cost or Transformational event? Say we have transformed S2 by $5 because S1 is our incombent, and switching costs have been calculated at $5.  This has an impact on the Savings calculation.  There are two ways we could calculate this:

       

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      1.   Impact on Bidder and Historical:

       

      Savings = (Historical+Cost Adder) - (Price+Cost Adder)

      S1 Savings (100+0)-(95+0) = $5

      S2 Savings (100+5)-(90+5) = $10

       

      Here you are saying that the historical of working with S2 would have been higher because of the switching costs if we went with them in the past, so that needs to be adjusted.

       

      2. Impact on just Bidder

       

      Savings = (Historical) - (Price+Cost Adder)

      S1 Savings (100)-(95+0) = $5

      S2 Savings (100)-(90+5) = $5

       

      Here you are saying that the historical is what it is, the price we paid last period.  No adjustments.

       

      3. Impact on Just Historical

       

      Savings = (Historical+Cost Adder) - (Price)

      S1 Savings (100+0)-(95) = $5

      S2 Savings (100+5)-(90) = $15

       

      Here you are saying the costs that are factored in are not real/hard costs, so they should be backed out in calculating savings.

       

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      All three have their merits, but which is the way you feel it should be in the Solution?  Currently, we calculate it as #3 above.  It has been that way for a long time.  We recently had a defect reported against such and I wanted the feedback from the Community on how we calculate Savings.  If we change it, we would be impacting both Total Cost and Transformational Events.

       

      So, should you calculate savings solely based on historical price or do you factor in cost elements into your savings calculations?  What types of savings factors should you factor in? Switching Costs?  Shipping?  Taxes?

       

      Please let me know your thoughts!