Cost of Savings
Cost of savings is the total amount of cash that an organisation saves by cutting costs from year to year. The amount the company saves counts towards the profit of the company at the end of the financial reporting period. For instance, Wal-Mart, the world’s largest retail chain, has adapted the use of outsourcing in the purchases of certain products from the local markets to cut back on costs of international purchase of the products sold on the retail outlet (Procurement Online, 2008). The local supplier networks are especially important in helping the company reduce costs from its long-distance shipping activities.
Quality ensures a continuous desire to reduce the number of purchase defects by ensuring that the purchases attain a high quality before their delivery. Wal-Mart’s adaption of the local supply of retail products also carries the intention of improving on the quality of its products to its legions of customers. The move has come with the realization that the perception of product quality changes with regions and local taste (Procurement Online, 2008), and offering products that the locals consider superior in quality will go a long way in boosting the sales for the company’s products.
The degree of satisfaction customers get from a company is fundamental for the organisation’s success financially and otherwise. With the changing trends on the global market place, suppliers of products to customers have to adjust accordingly to the varying customer tastes to remain successful and avoid losing customers to the competition. At Wal-Mart, when the global economic crisis hit the global economy, a unique opportunity came for the retail chain to give their customers more satisfaction. In support of waning local economies, Wal-Mart embraced broad reforms in its original purchase strategy by giving local suppliers a greater part in the supply of the products the company sells in its global chain network. Therefore, customers derive greater satisfaction for knowing that the retail chain supports local industry and by extension the local economy.
Purchasing Return on Investment
The value measures the effectiveness of the purchases department with regard to the returns on the purchases budget. The purchase of product from the suppliers should seek to optimize the return on the cost of purchase of the materials in acquisition. For Wal-Mart, acquiring a dedicated team of local suppliers considerably reduced the cost of supply of products. The move also effectively reinforced Wal-Mart’s position as a preferred retail outlet, enabling it to make better return on investment without undue pressure from competition.
Value of Supplier ideas
Suppliers may have very important ideas as to the process of ensuring that the company makes the best of the products supplied to it with regard to the target customer. By seducing local suppliers, Wal-Mart also gains the prime position of understanding in intimate details the target buyers for the region, as the suppliers will offer insight as to the consumer preferences for the local clientele. Wal-Mart, in its state-wide campaign to woo buyers, has engaged the cooperation of local suppliers, who will help the retail chain make more profits by winning more customers.
Supplier metrics help a company effectively manage its purchasing operations and have higher profits as a result. The metrics include customer satisfaction, value of supplier ideas, and purchasing return on investment, cost savings and quality of the goods delivered. Wal-Mart has incorporated broad changes in its purchases management to benefit from these purchasing metrics.