Procurement reports a 12% saving on the antibiotic tender. The CFO sees drug spend up 4% year on year. Both are right: volumes rose, the mix shifted to IV, and a saving on unit price was swallowed by consumption. Until procurement and Finance agree on what a saving is and how it is measured, every procurement number is contested and the function is undervalued.
Four saving types Finance will accept
- Price saving — same item, same volume, lower unit price. Measured as (old price − new price) × actual volume bought. Booked as it is bought, not at award.
- Cost avoidance — a price increase resisted or a new item bought below the first quote. Real, but reported separately and never netted into the P&L claim.
- Demand and specification saving — fewer units or a cheaper equivalent (the class-level lot, the generic switch). Measured against the previous mix at the previous price.
- Process saving — consolidated deliveries, lower inventory, fewer expiries. Measured in working capital or write-offs, with Finance’s numbers.
The tracker
One line per initiative: category, item or lot, baseline price and volume, new price, start date, saving type, forecast annual saving, and then — monthly — the actual volume from the ledger and the realised saving. Finance owns the baseline and the actuals; procurement owns the initiative and the forecast. Sign-off is joint. The number that goes to the board is the realised column, not the forecast.
Three rules
- No saving is claimed without a baseline Finance has seen.
- Savings are booked on consumption, not on award.
- Cost avoidance is reported, never added.
Groups that run this tracker find that realised savings are typically 55–70% of claimed. That is not a failure — it is the first honest number, and it is the one that gets procurement a seat at the budget table. Our procurement advisory engagements install the tracker in the first month.