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    Purchasing ROI

    How many of you have dealt with implementing new purchasing systems into corporations or organizations. I am currently working with an organization that is trying to do some aggregation of vendors for a couple of commodities. We are at the same time trying to assess the savings we would be achieving through these processes. Do any of you know of generally accepted methodolgies for assessing these when there is only limited data? are there articles out there on these?

    the organization is in the higher ed arena.

    #2
    abay salay MBA kur kay bhi aisay sawl kurta hai ;-p

    There is a simple equation for
    ROI = (Total Benifit - Total cost) / Total costs

    Your analysis is based on the areas of Interest, desired outcome and costs + implementation of the purchasing systems out there.
    There are various things to keep in mind... size of your company, software features that are critical to you guys, amount of resources that you are willing to allocate etc....These are all variables and one variable can take priority over the other depending on the needs of your company.
    If I were you I'd do a simple spread sheet...put the facts down and then compare softwares and match your needs accordingly.
    ciao.

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      #3
      Hey hmcq...
      it depends on the organization and the project management philosophy.

      For my company, everything is measured in six sigma terms... we talk about CTQs' (critical to quality) factors for evey project and our business case for the project is based on those CTQs'. For the more front-end projects these CTQs' are easy to predict/measure but for the back-end projects (the sort I work on), these tend to be more generalized on the workflow output measures.

      For my previous job as a Security Analyst, we used more passive measures like nnualized Losses and the reduction in those losses by implementing specific solutions. Finally, an optimistic vision could evaluate the reduction in losses over the solution's lifetime and you could go as far as caluculating the Present value of annuities that result from the reduction in losses.
      Oops... that sounds complicated.

      I guess in short it all depends on the project's scope.

      Ciao.
      For reason, ruling alone, is a force confining - and passion, unattended, is a flame that burns to its own destruction - Khalil Gibran

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        #4
        finally some responses... not exactly what i wanted but thats because I did not ask the right questions!.

        I know about the savings estimate.. and my savings estimates are not on the actual software implementation but rather on the commodities we are trying to aggregate.

        Just looking at two different commodities:

        Office supplies (a commodity with fairly stable pricing per item and relatively limited new items each year... however, number of unique items is huge (SKUs).. in my case several thousands just from the data I have (20% of possible complete data set)-- several vendors consolidated to one vendor... how do you do a cost analysis if you dont have SKU level information? Is an aggregation by product type and assumption of uniform profit margins across each aggregate category approporate? is there a methodology followed in the consulting world, that is both precise and reasonably acceptable without biasing the results to meet the ROI expectations of the project?


        IT hardware - with so many configurations, how do you baseline the cost savings over a year or three years (life cycle of products) especially as products also loose value due to techonology and discounting. How do you assess additions to standard configurations (say CDwriter added on to laptop) and then compare it to new products with the similar configurations. How about warrenties? can you compare a 3yr warrenty for a Mac 2 yrs back to a 3 yr warrenty to Mac today.

        How about accessories, especially those that have been outdated? how do you categorize all this data into some aggregate form? are there any basic items (such as chip/MHZ/RAM MB) that I can use to build some sort of measuring stick for various products?

        How about software packages, when you move say from a unix setup to linux, or when you change version types, say from MS Office to Professional as the basic standard for an organization? How about moving from a pay once service to outsourcing all servicing needs on a pay per need basis....

        Do either of you have references that I can read up on, any suggestions on where I can find information or personal insights into these questions.

        Boss--- abi MBA finish nahi huwa!


        UT - are you in OH these days by the way? if you are let me know, we can get together sometime.

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          #5
          PS: Annuities and so on are not a problem and dont mind the added complication, but the ROI or rather savings I am thinking about is backword looking as we implement new systems of purchasing and the end desired result for the upper ones is a $ or a percentage number.

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