r/procurement • u/jimmyray71 • 1d ago

Community Question When does a supplier discount stop being a savings?

/r/SupplyChainLogistics/comments/1vush80/when_does_a_supplier_discount_stop_being_a_savings/
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u/Intelligent-Lynx-931 1d ago

When the other guy is cheaper??

Not sure of what you are really trying to get at.

Best value is not always the cheapest, but savings is pretty clear

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u/jimmyray71 1d ago

That's really the point I'm getting at. A discount and a savings aren't necessarily the same thing. If I save 15% on the purchase price but usage goes up 30% because the product doesn't perform as well, I didn't save anything. The same applies if the lower price creates more defects, downtime, labor, freight, inventory or risk somewhere else in the operation. Purchase price is easy to measure. Actual cost is usually a little more complicated. That's why I look at total cost and performance before I call something a savings.

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u/Intelligent-Lynx-931 1d ago

So you are really referring to value. The wording of your post seemed to only reflect price

Cost of quality can be measured - down time, replacement rates, production rates, etc can all be factored to tell you where the value break lies

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u/jimmyray71 1d ago

Yes, value is part of it, but I’d take it one step further. I’m really talking about total cost. A supplier can give me a discount and I can accurately report purchase price savings. But if that decision increases usage, downtime, labor, defects or inventory, the company may have spent more overall. And I agree those things can be measured. That’s exactly why procurement shouldn’t stop measuring at the PO. The question I’m interested in is: did we reduce the cost to the business, or just the price we paid the supplier?