Containing your cost savings to the bottom line…

Seprio has been negotiating purchase agreements on behalf of their customers since 2000. These agreements span all kinds of spend categories and industries. With that kind of diverse experience and analysis of the results, we find a common thread through it all… savings. Whether it be a pure cost savings to the bottom line or a cost avoidance through a negotiation, the savings are out there. Many ask, by saving these hundreds of millions year after year, what do the customers do with all of this new found cash?  You might be shocked by this answer, they spend it! ALL OF IT! While it is easy to make light of this scenario, it’s not one to be taken lightly if you are looking for a true contribution to your bottom line. So what is an organization to do?

After careful consideration of the savings our customers enjoy, we have created a unique concept of savings retention.  When a customer sets out to reduce costs in their operating budget, the money is easily accounted for in the reduction of the OpEx at the account level. This is a very different story when the savings is achieved through that very grey area of cost avoidance. We don’t see cost avoidance as a grey area at all, it’s quite clear, the money was budgeted for the spend, the total cost was reduced below the budgeted amount and the result is a avoided additional cost or cost avoidance. Simple to us, but complex to the customer when we report a $10M cost savings to their organization and they can’t find the money. Our response to this is simple, contain your budget variance in a separate account within finance. This number should always reconcile to the final savings number. If it doesn’t, either the money was spent without visibility or the savings were never produced. In either event, it’s important to quantify in order to understand the savings landscape.

Negotiating a cost savings is only part of the equation. Negotiating a supporting contract is another part. However the final piece is quantifying and CONTAINING these savings so that they can make a real contribution to the bottom line.