Procurement Saving Handbook - Vers1 07 - V1

Deutsche Post DHL Procurement
Saving Handbook
Version 1.07
PBTS 5.3
Feb. 2011
This document is confidential. Any unauthorized use, viewing or duplication is strictly prohibited.
Content
Preface........................................................................................................................................... 5
1 Introduction ........................................................................................................................ 6
1.1 Role of Procurement ...................................................................................................6
1.2 Objectives and motivation for savings measurement .................................................6
1.3 Savings communication and alignment ......................................................................7
1.4 Roadmap to the savings handbook ............................................................................7
1.5 Contact for questions and change requests for the savings handbook......................7
2 Fundamental terms and definitions ................................................................................. 8

2.1 Challenges and implications for savings measurement..............................................8
2.2 Link of savings measurement to DEUTSCHE POST DHLs 5-Step-Sourcing-
Process: ......................................................................................................................9
2.3 Savings framework and guidelines ...........................................................................10
2.3.1 Overview savings concept....................................................................................... 10
2.3.2 Savings measurement process ............................................................................... 10
2.3.3 Key elements of the Procurement savings framework ............................................ 14
3 Savings reporting methodology ..................................................................................... 35

3.1 How to calculate annualized contracted cash savings .............................................35
3.2 When to report annualized contracted cash savings ................................................36
3.3 How to consider exchange rate impacts in savings calculation................................36
3.4 Examples for the calculation of annualized contracted cash savings.......................37
3.4.1 Example 1: Contract with regular expected demand and savings ........................... 37
3.4.2 Example 2: Contract with non regular expected demand and savings .................... 37
3.4.3 Example 3: Contract duration less than 12 months ................................................. 38
3.4.4 Example 4: Cumulation of savings in a certain part of contract duration ................. 38
4 Savings Alignment Process ............................................................................................ 39

4.1 Savings Alignment for Cost Reduction Savings .......................................................39
4.1.1 Alignment principles ................................................................................................ 40
4.1.2 Escalation process for Cost Reduction.................................................................... 42
4.2 Alignment process for Cost Avoidance/Procurement Benefit Savings .....................42
4.2.1 Alignment principles ................................................................................................ 43
4.2.2 Escalation process for Cost Avoidance / Procurement Benefit................................ 45
4.3 Benefit of the alignment process for the finance community ....................................45
5 Special reporting and alignment cases ......................................................................... 46

5.1 Special case 1: Frame agreements ..........................................................................46
5.1.1 Precondition ............................................................................................................ 46
5.1.2 Case 1 (Volume and business partner known)........................................................ 46
5.1.3 Case 2 (Volume known, business partner unknown) .............................................. 47
5.1.4 Case 3 (Volume unknown, business partner known) .............................................. 47
5.1.5 Case 4 (Volume unknown, business partner unknown) .......................................... 47
5.1.6 General remarks to report savings out of frame agreements .................................. 48
5.2 Special case 2: Volume rebates if historic/comparable baseline available ..............48
5.3 Special case 3: Lease vs. buy ..................................................................................49
5.4 Special case 4: Savings reporting against a price index ..........................................50
5.4.1 Index for labor cost driven categories...................................................................... 50
5.4.2 Index for hotels........................................................................................................ 52
6 Category specific savings guidelines ............................................................................ 53

6.1 Overview on clusters and categories described .......................................................53
6.2 Ground Fleet .............................................................................................................54
6.2.1 Heavy Vehicles & Equipment; Cars & Vans ............................................................ 54
6.2.2 Ground Fuel ............................................................................................................ 59
6.2.3 Fleet Services: Fleet-Rental Cars............................................................................ 60
6.3 IT & Communication..................................................................................................64
6.3.1 Communication ....................................................................................................... 64
6.3.2 IT Consulting ........................................................................................................... 69
6.3.3 PC's and Peripherals............................................................................................... 71
6.3.4 Servers .................................................................................................................... 75
6.3.5 Software .................................................................................................................. 77
6.3.6 IT Operation Services.............................................................................................. 80
6.4 Network Supplies ......................................................................................................83
6.4.1 Corporate Ware....................................................................................................... 83
6.4.2 Office supplies......................................................................................................... 85
6.4.3 Packaging................................................................................................................ 91
6.4.4 Operational Prints.................................................................................................... 93
6.5 Production Systems ..................................................................................................97
6.5.1 Scanners, Label Printers and Measurement Systems............................................. 97
6.5.2 Security ................................................................................................................. 100
6.5.3 Logistics and Warehouse Systems ....................................................................... 102
6.5.4 Sorting and Conveying Systems ........................................................................... 107
6.6 Site Services ...........................................................................................................108
6.6.1 Temporary Labor................................................................................................... 108
6.6.2 Facility Management; Utilities................................................................................ 116
6.7 Services ..................................................................................................................122
6.7.1 Consulting and Prof. Services ............................................................................... 122
6.7.2 Travel & Entertainment: Air travel.......................................................................... 125
6.7.3 Travel & Entertainment: Hotels (accommodation only) ......................................... 126
6.7.4 Travel & Entertainment: Hotels (meetings and incentives) .................................... 128
6.7.5 Travel & Entertainment: Rail.................................................................................. 130
6.7.6 Travel & Entertainment: Travel Agencies .............................................................. 131
6.7.7 Marketing & Media ................................................................................................ 131
6.8 Transportation .........................................................................................................137
6.8.1 Ground Transportation .......................................................................................... 137
6.8.2 Air Transportation.................................................................................................. 139
6.8.3 Sea Transportation ................................................................................................ 141
7 Appendix ......................................................................................................................... 144

7.1 Glossary of terms ....................................................................................................144
7.2 Frequently asked questions ....................................................................................144
7.3 List of abbreviations ................................................................................................146
7.4 Reporting Logic .......................................................................................................147
7.5 List of changes (compared to last version communicated, Version 1.06) ..............148
Preface
Overriding goal of the DEUTSCHE POST DHL Procurement Savings Handbook is to create a
common understanding about savings and performance measurement throughout the DEUTSCHE
POST DHL Procurement organization.
The DEUTSCHE POST DHL Procurement Savings Handbook sets up a saving-framework includ-
ing general and category-specific savings classes, scenarios and calculation rules.
The application of this handbook is mandatory for the entire DEUTSCHE POST DHL Procurement
organization across all countries and all entities. It addresses all issues related to savings meas-
urement and comprises all DOE1 product categories, their specific savings classes, scenarios and
calculation formulas.
The handbook will be a "living" document. Gradual extensions and/or adaptations per category ac-
cording to sourcing experts needs and to the sourcing strategy will be done on a regular basis.
This will keep the document up-to-date consequently. However, updating and quality of the docu-
ment depend heavily on the active contribution and input of all stakeholders.
The DEUTSCHE POST DHL Procurement Savings Handbook is centrally owned and coordinated
by DEUTSCHE POST DHL Procurement Performance Management in the countries and regions.
All comments, feedback and suggestions for changes should therefore be submitted to the re-
sponsible Procurement Performance Manager.
1
Direct operational expenses
CONTROLLING PROCUREMENT Page 5

1 Introduction
Savings are the most important deliverable in the sourcing process. This
chapter points out why savings measurement is critical for Procurement.
1.1 Role of Procurement
Procurement offers two services (products) sourcing and operational pur-

chasing support.
Sourcing and purchasing are linked to each other: professional sourcing starts Procurements
with a thorough spend analysis and ends with compliant implementation of
value contribu-
contracts by use of effective and efficient purchasing processes.
tion
With a spend volume exceeding 9 billion EUR p.a.(as of 2008), Procurements
value contribution is based on achieving best prices for products and services,
i.e. generating savings.
1.2 Objectives and motivation for savings measurement
Procurement and its cost structures contribute to DEUTSCHE POST DHLs

overall business success. Consequently, the DEUTSCHE POST DHL Pro- Procurement
curement departments should pursue the target of keeping their spend under
constant control and optimizing their cost structure by achieving savings op- savings and
portunities wherever adequate. A consistent Project and Benefit Tracking Sys- business suc-
tem (PBTS) supports Procurement in assuring the bottom line impact of sav-
ings and shows attainment towards committed DEUTSCHE POST DHL Pro- cess
curement savings targets.
Furthermore, the PBTS provides a basis for effective steering of the organiza-
tion and resource allocation through:
Providing transparency and consistency on all initiatives, responsibilities, Project and

targets, schedules and progresses
benefit tracking
Project milestones and benefit data reflecting the impact of all actions aiming
system (PBTS)
at savings generation
Avoiding conceptual double-work across divisions
Sharing lessons learned across the DEUTSCHE POST DHL organization
Finally, it will provide a fair and realistic picture of the Procurement organiza-
tions impact:
Procurement or-
Ensure comparability of savings results and gain high credibility for the ganization im-
achievements by all internal and external stakeholders
pact
Prove value of sourcing activities and justify future initiatives
Support category managers and Procurement employees in "selling" the im-

portance of Procurement activities and their contribution to overall Procure-
ment targets.
Provide basis for realistic controlling of initiatives by Performance Management
in countries and regions.
1.3 Savings communication and alignment
A substantial element of a successful savings reporting is to share a common

understanding of the savings measurement process, the savings influencing
factors and the value contribution delivered with all stakeholders.
Therefore Procurement savings, underlying volumes and conditions have to be

communicated to and aligned with the business partners and depending on a Savings
threshold with the responsible CFO on business side. Communication to the alignment
business partners takes place in the review gates as described in the docu-
ment General Sourcing Process Description provided in the Intranet.
Details on the alignment process with business partners CFO can be found in
this handbook, chapter 4 Savings alignment with the CFO.
1.4 Roadmap to the savings handbook
The savings handbook consists of six main chapters:

Chapter Name of the chapter Purpose
Preface Make the reader familiar with the handbook and the necessity of
savings measurement and reporting
1 Introduction
Defines savings measurement process and key elements of the

2 Fundamental terms and definitions
savings framework that are valid for all categories of DP DHL spend
3 Savings reporting methodology Defines calculation of annualized contracted cash savings
4 Savings alignment with the CFO Defines process of savings alignment with business partners' CFO
Defines savings reporting from frame agreements, kick-backs, lease

5 Special reporting and alignment cases
vs. buy initiatives
Definition of specific savings classes, scenarios and calculation for

6 Category specific savings guidelines
each category
To get a thorough understanding of how to calculate and report savings we

recommend to read chapter 1 5. Chapter 6 contains specific guidelines for all
different categories. Therefore the reader should only focus on the parts that
deal with the categories she/he is responsible for/interested in.
1.5 Contact for questions and change requests for the savings handbook
If you have any questions or amendments/change requests regarding the sav-

ings handbook please contact
Michael Schfer, Controlling Procurement

E-Mail: michael.schaefer@deutschepost.de; Telephone: +49 228 182 16548

2 Fundamental terms and definitions
2.1 Challenges and implications for savings measurement
Savings aiming at structural improvements need systematic measuring. Sev-

eral challenges have to be faced thereby:
Savings are measured in a dynamic environment comprising various business-

and/or market-driven factors and scenarios (e.g. market price and currency
variances, volume changes, technical and specification modifications).
Savings impact is distributed among different categories, divisions and geog-
raphies. Clear distinction between Procurement related and non-Procurement
related savings is difficult.
A fully-automated savings calculation cannot exist due to the high level of
complexity, different levels of granularity, category specific elements and case
by case decisions. Savings measurement however needs to overcome these Consequent sav-
challenges by observing the following implications: ings reporting
Exhaustive and flexible savings concept to allow the incorporation of future
changes and developments
Ease of understanding and use, balance between consistency and applicability
Concept and tools accepted by all stakeholders
Figures based on authentic, trusted data (i.e. contracted savings) reflecting the
full impact and building credibility
Group-wide consistency, treating similar scenarios similarly across all entities
Coverage of entire DEUTSCHE POST DHL organization including all regions
and all entities

2.2 Link of savings measurement to DEUTSCHE POST DHLs 5-Step-Sourcing-Process:
Savings need to be consistently defined and calculated over all stages of the Interrelation of
sourcing process. The links between the DEUTSCHE POST DHL sourcing
savings meas-
process and the savings measurement process can be illustrated as follows
urement and 5-
1 2 3 4 5
Sourcing
Sourcing Demand Supply
Strategy
Supplier
Implementation
Step-Sourcing-
process Analysis Analysis Development Selection
Process
Milestone Tracking
PBTS Project
Initiative Scoping
process creation
Savings Measurement
Savings Estimated Contracted Contracted aligned

Baseline
Reporting savings savings savings
As illustrated above, savings measurement process is closely interrelated with

the sourcing process: With the start of the sourcing process a record needs to
be created in the PBTS. Among others milestones for the duration of the five
steps of the sourcing process are defined and the baseline is calculated so
that savings can be measured when contracts are put in place.
In the course of the sourcing process defined milestones will be tracked in the
PBTS and savings will be estimated. As soon as suppliers are selected the
contracted savings from final negotiations can be calculated. After review gate
3 (commitment review gate) and alignment with the CFO, if necessary, con-
tracted aligned savings will be reported. Consistency of savings calculation
and guidelines have to be ensured along the whole sourcing process. To align
both processes this handbook will provide a concise conceptual framework.

2.3 Savings framework and guidelines
2.3.1 Overview savings concept
The savings measurement process can be specified by four steps, and is

guided by Procurement savings definitions, assumptions and rules.
Savings measurement process Overview

Estimated Contracted Contracted savings frame-
Baseline spend
savings savings aligned savings
work
Key elements of procurement savings framework

to be applied along savings measurement process
Savings Savings Savings Calculation

types classes scenarios rules
Basic definitions,
assumptions & rules
The savings measurement process and its key elements are explained in the
following chapters.
2.3.2 Savings measurement process
Savings may be generated from different sources along the entire value chain.
In all cases the involvement of Procurement is required to recognize Savings,
though Procurement does not necessarily have to lead the efforts. Getting to
the point, the main query will be: Whos spend will be affected ?
We have to clearly distinguish between own DP DHL spend (Savings) and

external spend volume (Value):
Procurement Savings can only be generated for internal DP DHL cus-

tomers, meaning on Spend volume of DP DHL. This spend volume affects
(directly) our own DP DHL cost or Capex base. Savings can not be claimed on
external spend volume even if negotiated by DP DHL Procurement depart-
ment.
Value can only be created for external customers and is not part of the Saving
handbook. An external customer means, that the company is not within our
own DP DHL organisational structure, i.e. not included in the DP DHL organ-
isational hierarchy (for further details please refer to the Value Handbook).
Goods are purchased by the external customer without any effect on DP DHL
CONTROLLING PROCUREMENT Page 1 0

Profit & Loss cost base, i.e. goods are ordered on behalf of our external cus-
tomer and directly paid by our external customer. Therefore, DP DHL does not
acquire any asset rights on the sourced goods/services (no ownership of the
sourced products).
External spend refers also to spend which is booked on DP DHL books, but
without any profit & loss impact on group level, cause invoices will be directly
charged out to the external customer (via pure clearing accounts). DP DHL
takes no ownership of the sourced products.
The key elements of the savings framework need to be consistently applied

through all steps of the savings measurement process. The process steps are
explained in the following paragraphs.
2.3.2.1 Baseline spend

A baseline builds the fundament for measuring savings. It has the function of a
benchmark, or a leveling rule, and measures the Procurement performance.
The establishment of a baseline is a fundamental step in the measurement
process, and we therefore describe the baseline-design in more detail:
The spend baseline is defined at the category (subcategory) level per (sub-)
division and country. Each baseline consists of the two elements volume and Baseline spend
price (in ). The factor volume is based on volume forecasts aligned with busi-
ness partners for the period after the suppliers negotiations. For each cate-
gory/subcategory the volume needs to be determined separately.
The factor price is also set per category/subcategory. There are three methods
to set up the price component:

a) Historic baseline:
The historic baseline typically refers to the last price paid in current or prior pe-
riod ("historic") and should always be a "first choice option" for savings calcula-
tion:
If products and/or services (product/service basket) have been purchased

previously, historic prices/volume that are still valid until a new contract is ne- Baseline types
gotiated should be always used as baseline. This type of baseline is called a
"fixed baseline".
If the price of a purchased good/service fluctuates heavily due to a depend-
ency on the price development of a raw material (e.g. fuel), special rules for
baseline definitions have to be applied per category. For example, fuel prices,
have to be calculated in correlation with the oil price development. This base-
line is called a "variable baseline".
Pricing Type Baseline Elements Baseline Calculation
A Last (or date

price certain) purchase price
paid
Fixed A x B
B Volume
C Prior year cost (spot price) for given

period (month, quarter)
D Raw material component (percent of

Variable total product cost) C x [1 + ( D x E )] x F
E Raw material index change
F Volume
Example for variable baseline:
Plastic envelope price per item (in 2006): 2

Polyurethane raw material share price (percent of total cost for plastic enve-
lopes): 25%
Polyurethane price increase (in 2007): 10%
Volume aligned with business partner (# of items in 2007): 10.000.000
Baseline calculation for 2007: 2 x [1+(0.25 x 0.1)] x 10.000.000 =
20.500.000
The historic baseline should always be set up for the total volume (= all items
purchased in a specific sourcing category). If this is not possible, representa-
tive items ("product/service basket") should be used as prices in the baseline.

b) Comparable baseline (Target pricing)
If products/services have not been purchased previously, and/or a historic

baseline cannot be established, the purchased products/services should be
partitioned in accordance with already known, comparable components or
components where the price can be determined analytical based on prod-
uct/service know-how. By summing up the prices of these comparable compo-
nents, a target price for the new product/service is created serving as bench-
mark.
c) New baseline
If neither a historic nor a comparable baseline can be established, a new

baseline can be developed based on the RFP quotes provided by the suppli-
ers:
Where three or more RFP offers are available: The baseline price will be cal- New baseline
culated as average of the three best commercially and technically approved types
"like" offers (sum of the best three prices of offers divided by three).
Where less than three RFP offers are available: The baseline price will be
taken from the best commercially and technically approved offer.
Any price reductions received through follow-on negotiations (including
auctions) can be viewed as savings.
2.3.2.2 From estimated savings to contracted savings

Next, a savings estimation is undertaken for orientation and forecast purposes.
"Estimated savings" are based on the baseline, the targeted new contract
prices and projected demand.
After the suppliers have been selected "contracted savings" will be determined.
Contracted savings are based on the difference between contracted pricing

and baseline (and therefore reflect usually savings based on the projected
demand). Contracted savings have to be decided upon and approved by the
project leader and the business partners.
2.3.2.3 From contracted savings to contracted aligned savings

After review gate 3 (commitment review gate) the demand has been agreed on "Finish" of
with the business partners and the contracted savings need to be aligned with
measurement
the responsible CFO depending on the threshold. Contracted aligned savings
will be reported to the stakeholders. process

2.3.3 Key elements of the Procurement savings framework
2.3.3.1 Generic savings definition

A single, specific savings formula does not exist. Savings measures need to
be detailed according to category and scenario specifics as well as stages of
excellence and maturity. The following generic savings definition reflects our
understanding of savings:
Procurement savings are the financially

calculable value contribution of procurement
functions to the company result. Savings
influence DP DHLs cost structure across the Guiding
entire supply chain from the suppliers through
definition
the company, including the incurred process
costs, up to the customers or disposal.
Savings may come from different sources along the entire value chain. In all
cases the involvement of Procurement during the whole or main parts of the
Sourcing Process is required to recognize savings, though Procurement does
not necessarily have to lead the savings efforts, i.e. Procurement has to deliver
an important and appreciable contribution during the sourcing process and in-
volvement only will not be sufficient for claiming of savings.

2.3.3.2 Savings types, savings classes, savings scenarios and calculation rules
To make the generic savings definition tangible, a specification of savings
types, classes, scenarios and calculation rules becomes necessary:
Savings Savings Savings Calculation

types classes scenarios rules
Savings
methodology
Influence on Classes of impact Options for cost Formula for actual
customers costs expected from cutting savings calculation
sourcing initiative
Cost reduction Price reductions Product cost (cost reduction factor
Cost avoidance Volume reductions reduction or discount) x
Procurement benefit Process cost Make vs. buy (volume in units)
reductions Free of charge value based on
Acquisition cost extras competitive quote of
reductions ... fair market value
Inventory reductions ... ...
Cycle time ... ...
reductions and
Saving types
Three different savings types cost reduction, cost avoidance and Procure-
ment benefit - define clearly the influence of the savings on business partners
costs:
Cost reduction:
Savings measured against a fixed historical baseline lead to cost reduction.

Cost reduction savings generate cost improvement compared to prior period
and are hence Procurements direct value contribution to business partners
costs. Savings
influencing
Cost avoidance:
business part-
Savings measured against a variable historical baseline or a comparable base- ners costs
line lead to cost avoidance. Cost avoidance savings can result in stable or in-
creasing prices compared to prior period but nevertheless reflect a relative
cost improvement compared to initial RFP offer or market development.
Procurement benefit:
Savings measured against a new baseline lead to a Procurement benefit.

A Procurement benefit can be defined as a cost improvement compared to
RFP offers.

Saving classes
For an accurate supplier selection Procurement needs to take all supply chain
related costs of doing business with a particular supplier for a particular
good/service into account. Rather than simply buying based on price, the
buyer should have a method of determining what a particular purchase really
costs the organization. The concept of "total cost of ownership" (TCO) helps to
consider total cost of acquisition, use/administration, maintenance and dis-
posal of a given item/service. A good way to get started is to view TCO from
TCO approach
the perspective of what costs and activities occur prior to the transaction, si-
multaneously with the transaction, and after the transaction. Pre-transaction
costs are those that occur prior to the receiving of good/performance of the
service. Transaction costs are incurred at time of purchase, whereas post
transaction costs are incurred after the service is performed or after the item
has been received and inspected. The major cost elements that fit into each of
these categories are shown in following figure:
Procurement related costs

Savings classes
along the supply chain
Total savings
Pre-transaction components
Identifying need Price reduction
Investigating new sources
Negotiating/contracting process
Qualifying suppliers/supplier switching
Volume reduction
Total cost of
ownership Transaction components
(TCO) Price
Volume
Process cost
Order placement reduction
Delivery/transportation
Tariffs/duties
Billing/payment Acquisition cost
Inspection reduction
Return of parts
Inventory cost
Post-transaction components reduction
Line fall-out
Cost of inventory Cycle time
Cost of maintenance/repairs
Cost of disposal reduction
Dispute costs
Implementation related cost
Operational cost Others
Residual value
According to their specific characteristics, Procurement related costs along the

supply chain can be grouped in different "savings classes":
Price reductions (changes in price)

Volume reductions (changes in total volume/volume through active involve-
ment of Procurement i.e. active demand management)
Process cost reduction (All cost reductions that make the execution of an
activity cheaper: Reductions in personnel cost, e.g. for operating a machine
less people are required than before. Reductions in cost of operating or main-
taining a product, e.g. reduced energy consumption or less lubricants for oper-
ating a machine)Acquisition cost reduction (Changes in transactional cost to
design, specify, requisition, receive, store, issue and pay for material or ser-

vices. These costs are as well process costs. Due to the improvement poten-
tial of acquisition costs through eProcurement tools we decided not to catego-
rize these costs within the savings class process costs but establish an own
savings class).
Inventory reductions (changes in costs associated with maintaining physical
inventories including cost of capital, storage costs, handling costs, "shrinkage"
cost, etc.)
Cycle time reductions (changes in time needed to acquire materials or services
from conceptual design through delivery and utilization resulting in quantifiable
reduced costs, e.g. quicker revenue generation or less downtime)
Others: Savings scenarios that are relevant for Procurement but cannot be
categorized into one of the mentioned savings types above are subsumed
among the savings type "others"
Each savings class can be subdivided in a variety of savings scenarios.:
Savings scenarios
All savings scenarios address characteristic situations or levers that lead to

Procurement savings:
Savings classes Savings scenario (options to cut costs)

Renegotiation
New products buy
Free-of-charge extras
Inflation (price freeze)
Price reduction Volume rebate/incentive collection
Longer product life
Make vs. buy (e.g. Outsource/Insource
Insource)
)
Lease vs. buy
Re-engineered specifications
Subsidy
Volume reduction Demand management
Reduced personnel costs
Process cost reduction
Reduced costs for operating and maintaining
maintain
ing a product
a product
Manual transaction reduction for buying a product/service
Acquisition cost reduction
Payment & delivery terms reduction
Inventory reduction
Inventory reduction
Sale of surplus/obsolete material
Savings classes
Re-engineered systems to accelerate processes
Cycle time reduction

Dispute resolution (e.g. damages) acceleration
Accelerated sourcing process (e.g. negotiations)
in relation to sav-
Qualifying supplier/suppliers switching
Others
Reciprocal business deal Increasing ings scenario
Cost of disposal complexity

Calculation rules
All savings scenarios are tied to defined savings calculation formulas:
Savings Savings sce-

Calculation formula
class nario
Scenario SR1: (Last price paid Negotiated contract price) x Volume
Product cost reduction
Scenario SR2: New Three or more commercially and technically approved
products buy supplier offers: (Average offer price of three best offers
negotiated contract price) x volume
Less than three commercially and technically approved
supplier offers: (Best offer price negotiated contract
price) x volume
Scenario SR3: Free of Volume x value of free of charge extra
charge extra
(Remark: the free of charge extra needs to be specified
before negotiations)
Scenario SR4: Volume Volume x rebate/incentive per purchased unit
rebate/incentive collec-
tion
Price Scenario SR5: Lease vs. (Cost of purchasing per unit - leasing cost per unit) x vol-
reduction Buy ume
Respectively: (Cost of leasing per unit cost of purchasing
per unit) x volume
Scenario SR6: Make vs. (Cost of own manufacturing (i.e. labor + material cost +
Buy overhead cost) - purchase price) x volume
Scenario SR7: Longer Unit price x (previous volume of units new volume of
product life units)
Scenario SR8: Inflation Factor for avoided inflation x volume Calculation op-
(price freeze)
tions per sce-
Scenario SR 9: Re- (Cost for product with old specifications cost for product
engineered specifica- with new specifications) x volume nario
tions (value analysis)
Scenario SR 10: Subsi- (Cost for product Subsidy) x volume
dies
Volume Scenario VR1: Demand (Last volume negotiated new volume) x negotiated con-
reduction management tract price
Scenario PR1: Reduced (Number of FTEs for original process number of FTEs
personnel costs for new process) x cost per FTE
Process cost
reduction Scenario PR2: Reduced (Historic cost for operating or maintaining a product new
cost of operating or cost for operating or maintaining a product) x Volume
maintaining a product
Scenario AR1: Manual In case of less transactions: (Historic
transaction reduction
transactional volume new average trans-
actional volume) x average transaction
Acquisition costs
cost reduc-
tion Respectively in case of lower transaction costs: (Historic
transaction costs new transaction costs) x number of
transactions
Scenario AR2: Payment (Old payment terms new payment terms) x annual con-
& delivery terms tracted spend under new terms x WACC/day
Scenario IR1: Inventory (Historic book-value of company owned inventory current
reduction book value of reduced inventory) x cost of capital or total
Inventory carrying costs
reduction Scenario IR2: Sale of (Sales price for surplus material handling costs) book
surplus/obsolete mate- value
rial

Net return on investment from implementation of re-
Scenario CR1: Reengi-
engineered system (measured from time initial investment
neered systems
was recovered)
Scenario CR2: Dispute Dispute amount/liability negotiated settlement amount
Cycle time resolution
reduction Scenario CR3: Acceler- Savings amount with process improvement amount of
ated sourcing process savings without process improvement
Scenario CR4: Qualify- Cost for supplier switching before negotiation cost for
ing suppliers/supplier supplier switching after negotiation
switching
(Last price paid for product/service market value of
Scenario OR1: Recipro-
counter traded product/service) x amount of bought prod-
cal business deal
Others uct/services
Scenario OR2: Cost of Historic cost for disposal new cost for disposal
disposal
rd
Gain sharing of achieved benefits for 3 party sourcing
Scenario GS: Gain
Gain Sharing with direct impact on P&L of our Business Partner - share
Sharing Model
for internal Business Partner to be claimed as Savings
In the following different savings classes, scenarios and calculation rules

are explained in more detail:
Class SR: Price reduction
Price reductions are characterized by decreases in price. Price decreases will

be only accounted as savings, when Procurement was actively involved in re-
ducing prices (e.g. decreasing prices due to market conditions or regulatory
changes cannot be accounted for as savings).
Scenario SR1: Product cost reduction
Description:
Prices for a defined product and/or service (product/service basket) have been
reduced through active negotiations by Procurement (e.g. renegotiation of cur-
rent contracts, change of supplier etc.). The product and/or service has already
been purchased in the past with similar scope of services/quality.
Example:
Procurement sets up an eAuction for currently sourced corporate wear and is
able to reduce the last price paid by 5%.
Baseline: Renegotiation
Use last current price for product and/or service as baseline ("historic" base-
line). If this is not possible, try to create a comparable baseline or use prices
from initial RFP responses for establishing the baseline.
Savings calculation:
Using a historic baseline: (Last price paid negotiated contract price) x volume
Using a comparable baseline: (Last price paid for comparable components

Using a new baseline

Three or more commercially and technically approved supplier offers: (Aver-
age offer price of three best offers negotiated contract price) x volume
Less than three commercially and technically approved supplier offers: (Best
offer price negotiated contract price) x volume
Scenario SR2: New products buy
Description:
A new product and/or service (product/service basket) has been purchased
(e.g. new IT technology that allows new functionality mobile phone when first
introduced). Product and/or service have never been purchased before, so no
historic data on prices and/or quantities does exist.
Baseline:
The initial RFP responses are used as the baseline price (new baseline). The
baseline price will be calculated as average of the best three commercially and New products
technically approved offers (prices of this three offers divided by three). There
need to be at least three valid offers. In case of fewer offers, price baseline will
be the offer with the lowest price after negotiations.
Any price reductions received through follow-on negotiations (including auc-

tions) can be viewed as savings.

Less than three commercially and technically approved supplier offers (Last
negotiated offer price negotiated contract price) x volume
Scenario SR3: Free of charge extras
Description:
Negotiated contract with supplier includes free of charge extras which are not
included in the price, and have not been part of the product/service offering of
past purchases. The free of charge extra needs to have been specified before
negotiations.
Free of charge
Example:
Category manager of IT Consulting was able to negotiate a free training for a
newly developed software.
Baseline:
Value of free of charge extra in based on a competitive quote of fair market
value.

Volume x value of free of charge extra
Scenario SR4: Volume rebate/incentive collection
Description:
Negotiated contract with supplier with rebates on volume or similar incentives.
Rebate/incentive granted in new contract hasnt been included in previous buy.
Example:
Airlines pay x% of spend back at end of year, if at least y flights are done.
Baseline:
Value of rebate or incentive in . Rebates
(rebate/incentive per purchased unit new contract - rebate/incentive per pur-

chased unit old contract) x Volume
For re-negotiation of rebates see chapter 5.2 Special case 2: Volume rebates if
historic/comparable baseline available
Scenario SR5: Lease vs. buy
Description:
For some categories lease of products might be a viable alternative to buying
(or vice versa). To compare the savings between lease or buy of a product the
cost per one unit (e.g. kilometer) need to be calculated and compared.
Example:
A business partner needs new trucks. The Category Manager Heavy Vehicles
& Equipment has a price for buy and monthly cost for leasing the trucks. He
calculates the cost per kilometer for buy or lease of a truck.
Lease vs. buy
Baseline:
Actual cost of purchasing (including all related costs, e.g. cost for manage-
ment, overhead, maintenance) respectively actual cost of leasing per kilometer
(expected mileage aligned with business partner).
(Cost of purchasing per unit - leasing cost per unit) x volume

Respectively: (Cost of leasing per unit - purchase cost per unit) x volume
For more details see example in chapter 5 of this handbook

Scenario SR6: Make vs. buy
Description:
For some categories, where products are self-manufactured, purchase of fin-
ished products (or outsourcing) might be a viable option. If active involvement
of Procurement (e.g. through negotiation of prices) leads to the decision to pur-
chase these products in the future, the difference between the options make
vs. buy can be calculated as savings.
Example:
DEUTSCHE POST DHL internal staff executes human resource functions (e.g.
recruiting, professional development). The category manager of Consulting &
Prof. Services could set up a sourcing initiative in order to benchmark the
costs of internal HR services with costs of external HR service providers (e.g. Make vs. buy
personal consulting companies). The price comparison shows that
DEUTSCHE POST DHL can save 18% of the costs for recruiting, if the per-
sonal consulting company would take over recruiting activities from
DEUTSCHE POST DHL. DEUTSCHE POST DHL therefore decides to out-
source the recruiting function to an external service provider.
Baseline:
Actual cost of own manufacturing (i.e. labor cost + material cost + overhead
cost)
[Cost of own manufacturing (i.e. labor cost + material cost + overhead cost) -
purchase price ] x volume
Scenario SR7: Longer product life
Description:
Purchased product has longer product life/technical lifetime (e.g. due to better
quality) than comparable product at same or lower price level currently
sourced.
Example:
The category manager of PCs & Peripherals was able to identify a supplier Product life
who offers printers with an expected product life of 5 instead of 4 years. There-
fore, DEUTSCHE POST DHL can reduce the annual volume of printers pur-
chased.
Baseline:
Previously purchased Volume with lower product life.
Unit price x (previous volume of units new volume of units)

Scenario SR8: Inflation (price freeze)
Description:
Generally, in Western Europe and the US, inflation effects are ignored in base-
line setup. However, in certain economies, where inflation has a material im-
pact upon pricing, inflation rate2 must be considered in the baseline calcula-
tion.
In countries with high inflation rates (> 10%), Procurement can negotiate price
freezes (i.e. prices will be fixed for a certain period of time).
Price freeze
Example:
The category manager of corporate wear is able to identify an adequate sup-
plier for uniforms in Brazil, who offers 15% cost reductions compared to the
current prices paid. Due to the high inflation rate in Brazil (average inflation
rate of 7.3%) the category manager negotiates a fixed price for the next three
years.
Baseline:
Factor for avoided inflation (= average inflation rate for time period)
Factor for avoided inflation x volume
Scenario SR9: Re-engineered specifications (value analysis)
Description:
For some products/services the specification can be changed so that the price
can be reduced.
Example:
The category manager of PCs & Peripherals realizes that almost nobody is us-
ing floppy drives anymore. She/he decides to change the specifications of PCs
by canceling floppy drives from the specification list. Due to the change of the
specification the price for PCs can be reduced by 3%.
Baseline:
line).
Savings calculation: Value analysis

(Cost for product with old specifications cost for product with new specifica-
tions) x volume
2
Inflation rate to be obtained from a reliable publicly noted source.

Scenario SR10: Subsidy for specific products
Description:
For some products/services the local authorities grant subsidies (e.g. for Tran-
ing programmes); Procurement is identifying those subsidies and drives the
application for funds.
Example:
The category manager for sector Services realizes that the local government
grants special subsidies on Training programs per person. The subsidy
granted by the local government reduces the cost base of the training and can
be seen as a cost reduction on training cost for those employees involved in
the program.
Baseline:
line).
(Cost for product cost for product Subsidy ) x volume (e.g. employees in-
volved in program)
Class VR: Volume reduction
Volume changes will be only accounted as savings, if Procurement proactively

reduced the purchased quantities.
Scenario VR1: Volume reduction
Description:
Volume of a defined product and/or service (product/service basket) have
been reduced through active negotiations by Procurement, i.e. active control of
demand.
Example:
Based on internal benchmarking data the category manager of network sup- Volume
plies realizes, that office supplies spend is significantly higher in Italy than in
other countries. By setting up an initiative for demand management (e.g. a
special authorization process) she/he can trigger a reduction of volume.
Baseline:
Historic volume of product and/or service purchased.
(Historic volume negotiated lower volume) x negotiated contract price

Class PR: Process cost reduction
All cost reductions that make the execution of an activity cheaper can be de-
fined as process cost reductions.
Scenario PR1: Reduced personnel costs
Description:
Reductions in personnel cost, e.g. for operating a machine/system or running
an administrative process less people are required than before.
Example:
By introducing catalogue buying in DEUTSCHE POST DHL the administrative
processes (e.g. order approval or invoice payment) become more efficient so Processes
that the same amount of orders can be handled by 10% less human resources
in controlling and finance.
Baseline:
HR-costs for process before improvement.
(Number of FTEs for original process number of FTEs for new process) x
cost per FTE
Scenario PR2: Reduced costs for operating and maintaining a product
Description:
Reductions in cost of operating or maintaining a product, e.g. reduced energy
consumption or less lubricants for operating a machine.
Example: Costs for operat-

The introduction of preventive maintenance for elevators leads to less costs for
maintaining and repairing the elevators within DEUTSCHE POST DHL. ing/ maintaing a
product
Baseline:
The Baseline consists of the historic cost for operating or maintaining a prod-
uct.
(Historic cost for operating or maintaining a product new cost for operating or
maintaining a product) x Volume
Class AR: Acquisition cost reduction
Acquisition cost reductions are characterized as reductions in transactional

costs, i.e. all costs to design, specify, requisition, receive, store, issue and pay
for material or services. These costs often include human resource costs.

Scenario AR1: Manual transaction reduction
Description:
Procurement activities/negotiations leading to a decrease in transaction costs
or total number of transactions. Lever might be an increase in automated
transactions (EDI, EFT, ERS, barcoding etc.) and/or reduced manual transac-
tions.
Example:
By introducing electronically monthly invoices for network supplies the number
Manual transac-
invoices for that category can be cut by 20%.
tion
Baseline:
Historic transaction volume (in case of reduced transactions) and historic
transaction costs (in case of reduced transaction costs).
In case of less transactions: (Historic transactional volume new average

transactional volume) x average transaction costs
Respectively in case of lower transaction costs: (Historic transaction costs
new transaction costs) x number of transactions
Scenario AR2: Payment and delivery terms
1. Payment terms:
Description:
Procurement involvement results in a change of payment terms.
Example:
The category manager is able to negotiate with an incumbent supplier new
contracts containing new payment terms. Payment terms have been pro-
longed, e.g. from 60 days in old contract to 90 days in new contract.
Terms
Baseline:
Old payment terms in days
(Old payment terms new payment terms) x annual contracted spend under
new terms x WACC/day
Regarding Payment terms, Deutsche Post DHL set the payment terms with the
"Deutsche Post DHL Purchase to Pay Policy" from Sept 2004 to at least 60
days after invoice receipt as standard payment terms. This has also been in-
corporated into the DP DHL Uniform Legal Procurement Standards. All con-
tracts of Procurement need to have these payment terms included.

As far as payment terms for existing contracts can be extended, savings com-
ing from this prolongation of payment terms can be claimed, if prices have
been held stable or could be reduced compared to the old contract. Any kind of
price increase (counting also for granted discount rates) has to be netted out
against the savings coming from prolongation of payment terms.
For calculation of savings on payment terms prolongation, the usage of the
Supply Chain Financing Tool is suggested.
Savings can only be claimed once, when the contract is amended.
Interest rate (WACC) to be used for saving calculations are defined by de-
partment 645, Corporate Treasury. For the time being the rate to be used is
8,5%.
Example 1: Old contract with payment terms of 60 days could be prolonged to

90 days; Supplier switched to Supply Chain Financing as interim Financing
and granted further Discount of 1% on Spend volume.
Baseline Spend: 100.000 EUR (historical)

Spend: 99.000 EUR
For claiming of savings both scenarios have to be taken into account:

1. Volume discount: +1.000 EUR Savings (1% Discount) and
2. Payment term: +701 EUR Savings (+30 days; 0,7% based on WACC of
8,5%/year and Spend of 99.000 EUR).
Both impacts have to be netted, 1.701 EUR could be claimed as saving.
Example 2: Old contract with payment terms of 60 days could be prolonged to

90 days (+30 days); but granted discount of 0,7% on Spend volume was dis-
posed.
Baseline Spend: 100.000 EUR (historical Baseline, inkl. Discount of 0,7%)

Spend: 100.700 EUR (w/o Discount/Skonto of 0,7%)

Both scenarios have to be taken into account for claiming of Savings:
1. Volume discount: -700EUR Savings (lost savings from disposal of 0,7%
Discount/Skonto granted in old contract) and
2. Payment terms: +708 EUR Savings (+30 days; 0,7% based on WACC of
8,5%/year).
Both impacts have to be netted, 8.- EUR could be claimed as saving.
2. Delivery Terms
Description
Procurement involvement results in a change of delivery terms which leads to
substantial cost advantages (e.g. through joint process improvements).
Example:
Category Manager for ground fleet is able to negotiate free shipment of vehi-
cles (i.e. transport from vendor to station) leading to cost advantages (if not al-
ready included in TCO calculations).
Baseline:
Cost related to old delivery terms with historic quantities.
(Old basis of delivery terms new delivery terms) x annual contracted spend
under new terms

Class IR: Inventory reduction
Inventory reductions comprise all decreases in costs associated with maintain-

ing physical inventories, e.g. cost of capital, storage costs, handling costs,
"shrinkage" costs, etc. Savings from inventory reductions can derive from op-
timized warehouse space utilization, optimized management of the sequence
and quantities of items purchased.
Scenario IR1: Inventory reduction
Description:
Due to active involvement of Procurement the inventories (e.g. stock) can be
reduced, which results in significant cost savings.
Example:
The category manager of corporate wear finds out that on average there are
more than 5.000 uniforms on stock. By improving the ordering cycle she/he is Inventory
able to cut down the number to 500 uniforms.
Baseline:
Costs for inventory surplus.
(Historic book value of company owned inventory new book value of reduced
inventory) x cost of capital or total carrying costs
Scenario IR2: Sale of surplus/obsolete material
Description:
Procurement involvement kicks off an inventory reduction, and results in the
sale of surplus/obsolete material.
Example:
All PCs are replaced after three years by returning them back to the suppliers
in order to avoid recycling costs. The category manager of PCs & Peripherals Surplus
sets up an internal market within DEUTSCHE POST DHL for selling "used
PCs" to employees. Thus she/he is able to make a profit of 200.000 for
DEUTSCHE POST DHL.
Baseline:
Book-value of surplus material.
(Sales price for surplus material handling costs) - book value

Class CR: Cycle time reduction
Cycle time reductions are defined as all reductions in the time needed to ac-
quire materials or services from conceptual design through delivery to utiliza-
tion. Cycle time reductions will be considered when speed increases result in a
quantifiable value (quicker revenue generation, less downtime, etc.).
Scenario CR1: Re-engineered systems
Description:
Due to active involvement of Procurement systems are re-engineered and re-
sult in lower costs.
Example:
Instead of booking rail destinations via a call center of the travel agency (cost Re-engineered
per booking 2 EUR) Procurement implements an online booking system with system
causing no cost per order event.
Baseline:
Costs for prior to re-engineered situation.
Savings due to re-engineering of the system investment costs
Scenario CR2: Dispute resolution
Description:
Conflicts with suppliers arise because of perceived differences in interests.
Procurement might resolve disputes with suppliers through negotiation (based
on power), arbitration/litigation or mediation. Resolution of dispute might lead
to significant cost savings
Example:
A supplier is reducing or waiving a claimed liability due to Procurement nego-
tiation efforts.
Disputes
Baseline:
Amount of dispute/liability claimed by the supplier
Dispute amount/liability negotiated settlement amount.
Scenario CR3: Accelerated sourcing process
Description:
If the cycle time of the sourcing process can be reduced savings are generated
earlier and therefore profit of DEUTSCHE POST DHL increases.

Example:
In 2007 DEUTSCHE POST DHL Procurement has redesigned the sourcing
process by introducing cross-functional teams. The introduction of cross-
functional teams leads to a faster definition of needs and supplier identification.
Therefore the cycle time of the sourcing process can be reduced from 7 to 4
month. Thus DEUTSCHE POST DHL gets the better prices for 8 instead of 5
months in 2007.
Baseline:
Amount of savings without process improvement
Savings amount with process improvement amount of savings without proc-

ess improvement
Scenario CR5: Qualifying suppliers/supplier switching
Description:
Often a switch to a new supplier is associated with costs. These costs need to
be taken into account in order to draw a fair comparison to the costs of incum-
bent suppliers.
Example:
The supplier for labels should be changed due to better prices compared to the
incumbent supplier. The supplier asks DEUTSCHE POST DHL to pay
100.000 in order to cover the investment costs for new printing plates. The
buyer is able to reduce the investment costs by 30.000.
Baseline:
Cost for supplier switching before negotiation
Cost for supplier switching before negotiation cost for supplier switching after
negotiation Other savings
Class OR: Others scenarios
Savings scenarios that cannot be categorized into on of the savings classes
mentioned above are subsumed among "others".
Scenario OR1: Reciprocal business deal
Description:
A part or the total amount of an invoice of the supplier will not be paid in cash
but DEUTSCHE POST DHL delivers a service or product instead.
Example:
DEUTSCHE POST DHL buys IT maintenance services for data centers from
T-Systems and doesnt pay in cash. Instead DEUTSCHE POST DHL will de-

liver logistical services to T-System.
Baseline:
(Last price paid for product/service market value of counter traded prod-
uct/service) x amount of bought product/services
Scenario OR2: Disposal costs
Description:
At the end of their life time some products (e.g. PCs) have to be recycled.
These costs need to be considered to determine the actual price of a product.
Example:
The category manager for PCs & Peripherals is able to negotiate that the sup-
plier for laptops takes over 50% of the disposal costs.
Baseline:
Cost for disposal of old products
Historic disposal costs new disposal costs
Scenario GS: Gain Sharing
Description:
If gain sharing models are in place with an external customers, the share be-
longing to our internal Business Partner can be claimed as Savings.
Example:
Procurement renegotiated products for 3rd parties and the sales contract with
the external customer foresees, that both parties (internal Business partner
and external customer) should benefit out of these renegotiations. Therefore,
they contracted a certain gain sharing for these kind of benefits (i.e. price re-
ductions achieved for certain products) in the sales contract (x% belongs to in-
ternal Business Partner and x% belongs to external Business Partner). The
share for the internal Business Partner has direct impact on the P&L of DP
DHL and can therefore be claimed as Savings within PBTS.
Baseline:
Use last current price for product and/or service as baseline (historic base-
line).
Savings Calculation:
[(last price paid by external customer negotiated contract price for external
customer) x volume] x gain share percentage for internal business partner

Baseline Spend Volume: 1,0 Mio EUR (for external customer)
Spend Volume after renegotiation: 0,8 Mio EUR (for external customer)
Total Contribution: 0,2 Mio EUR
Gain sharing and Year-over-Year Cost Reduction are included in sales con-
tract: 5% Cost Reduction YoY implemented in sales contract with external cus-
tomer. All other Cost Savings exceeding 5% Cost Reduction YoY will be
shared 50/50, i.e. 50% belonging to our internal Business Partner and 50% be-
longing to the external customer:
Contracted Cost Reduction (fulfillment of sales contract): 0,05 Mio EUR

(benefit for external customer)
Gain sharing model:

(0,2 Mio EUR 0,05 Mio EUR) = 0,15 Mio EUR as basis for the gain sharing
model
=> 0,075 Mio EUR (50% gain share, benefit for external Customer, see Third
party value handbook)
=> 0,075 Mio EUR (50% gain share, benefit for internal Customer)
Only the gain sharing part belonging to our internal Business Partner can be
claimed as Savings in PBTS.
2.3.3.3 Basic assumptions and rules for savings calculation

Savings have to be recorded on the basis of the following principles:
What kind of savings will be reported?
Savings need to be related to Procurement (sourcing/Procurement involve-

ment is required to recognize savings and need to initiate savings/cost reduc-
tions).
Savings should always be reported from a total cost of ownership view
Savings must be reported on the basis of current and known price changes
How shall savings be calculated?
In case that several savings scenarios apply for a sourcing initiative, savings
need to be calculated step-wise by using the predefined calculation methods

for each of the relevant scenarios.
Savings will be calculated net of implementation costs.
Savings need to be calculated without value added tax.
How shall savings be reported?
The Savings calculation should be done in a way that they get the highest
acceptance within DEUTSCHE POST DHL
Non-personalized form, within the DEUTSCHE POST DHL purchasing de-
partments
Registering of savings in
Reported savings need to be easily traceable. For proof of evidence all neces-
sary documents for savings calculation need to be kept (supplier offers, copies
of purchase orders, copies of overview/savings calculation documents). The
more detailed and structured information is provided, the better savings can be
acknowledged.
Apart from the basic assumptions and rules for savings calculation outlined in
this chapter additional basic assumptions for determining the impact of savings
on the company performance need to be taken into account. These assump-
tions are explained in the next chapter.

3 Savings reporting methodology
3.1 How to calculate annualized contracted cash savings
Procurement savings are being reported as annualized contracted cash sav-

ings. To calculate these savings the following steps need to be accomplished:
1st step: Determine contract duration in months (e.g. 20 months)
2nd step: Define savings per month (e.g. 1.000 EUR for first 12 months and
2.000 EUR for the last 8 months) over the contract duration and calculate the
total cash savings over the whole contract period (e.g. 1.000 x 12 + 2.000 x 8
= 28.000 EUR) Steps to calcu-
rd
3 step: Calculate the annualized contracted cash savings by dividing the total late annualized
cash savings by the number of month of the contract duration (e.g. 28.000
EUR / 20 months = 1.400 EUR) and multiply the result by 12 months (e.g. contracted cash
1.400 x 12 = 16.800 EUR). savings
The whole contract period needs to be considered to avoid savings losses due
to potential ramp-up phases with slowly increasing savings amounts over the
first months of the contract period.
Exceptions regarding deviations from actual contract period:
As far as the contract period is less than 12 months (e.g. 6 months) the total
contracted cash savings over this contract duration need to be reported as an-
nualized cash savings (see Example 3 below). Otherwise savings would be ar-
tificially increased.
If a contract has been closed for a period of more than 1 year (e. g. 3 years)
but about more than 90 % of the volume is concentrated on a specific part of
that contract period (e.g. 20 month of the 3 year period) the contract period to
be considered for annualizing the savings is only that specific period (see Ex-
ample 4 below). Otherwise reported savings would not mirror Procurements
performance accurately.
If a contract has been closed a significant time before the first actual call off
out of the contract takes place (e.g. 9 months), the start of the contract period
for calculating the annualized contracted cash savings will be (fictively) post-
poned to the date of the first call off. Otherwise reported savings would not mir-
ror Procurements performance accurately.
In case of exception 2 and 3 an approval from Controlling Procurement at the
headquarters needs to be obtained.

Why is savings reporting limited to 12 month?
Annualized contracted cash savings show the annualized amount of savings
Why to report
influencing business partners budget over a 12 month period on a cash basis.
over a 12
A 12 months period is equal to the planning period of business partners. Be-
sides, business partners will reevaluate Procurement performance after 12 months period
months and is only interested in new savings.
Moreover, a 12 months period is in line with the reporting logic of the spend
cube (one year) and Procurement cost/budget perspective (one year). Why to change
Compared to the former savings Ebit view cash savings are transparent and from Ebit to
easy to understand to all stakeholders. They reflect the impact on the cash Cash savings
flow - the liquid funds - and indicate the sustainability of Procurement
view
achievements.
3.2 When to report annualized contracted cash savings
Savings shall be reported at the date of alignment with business partners CFO
respectively at the end of the negotiation phase (depending on a threshold, for When to report
details refer to chapter 4: Savings alignment with the CFO).
savings
In general, savings shall be reported in PBTS immediately, but in maximum
not later than eight weeks after the end of the negotiation phase.
3.3 How to consider exchange rate impacts in savings calculation
To eliminate exchange rate impacts in the savings calculation fixed rates shall
be used during the reporting year. Rates are based on official budget rates, Exchange rate
communicated on Crest homepage. Any deviations must be confirmed in writ- impacts
ing by Controlling Procurement.

3.4 Examples for the calculation of annualized contracted cash savings
Four different examples will be described to highlight the calculation approach

of annualized contracted cash savings:
3.4.1 Example 1: Contract with regular expected demand and savings
Contracted savings of initiative to be achieved
2007 2008 2009
4 4 4 4 4 4 4 4 4
3 3 3 3 3 3 3 3 3
2 2 2 2 2
1
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
2 years contract duration 35 kEUR 39 kEUR
2007
Contracted savings of initiative to be reported 37
total annualized for 1 year

35 kEUR
74 kEUR 37 kEUR
J F M A M J J A S O N D
39 kEUR
Reporting the annualized savings for

one year at the date of alignment
3.4.2 Example 2: Contract with non regular expected demand and savings
2007 2008
40
30
20
J F M A M J J A S O N D J F M A M J J A S O N D
project contract, 3 contracted payment dates 90 kEUR within 15 month
2007
total annualized for 1 year
90 kEUR 90 kEUR / 15 * 12 72 kEUR



3.4.3 Example 3: Contract duration less than 12 months
2007
15 15 15 15 15 15
6 months contract duration 90 kEUR within 6 month
2007
As far as the contract duration is less

than 12 month, the whole contracted
savings amount for this period will be
reported as the annualized savings J F M A M J J A S O N D

3.4.4 Example 4: Cumulation of savings in a certain part of contract

duration
2007 2008 2009
8 8 8 8 8 8 8 8 8 8 8 8 8 8
6 6 6 6 6 6
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
35 months contract duration 163 kEUR
20 months contract duration 148 kEUR 15 kEUR not to be considered
Contracted savings of initiative to be reported

2007
89
The actual contract duration is 35 months. According to exception 2 under
No. 3.1 of this handbook the duration to be considered is 20 months as
90% of the savings are accumulated in this period. The corresponding
savings to be annualized are the savings achieved only in that 20 months.
148 kEUR > 90% of total savings annualized for 1 year
89 kEUR Reporting the annualized savings for


4 Savings Alignment Process
We have to distinguish between different Saving Types and thresholds for alignments:
1.) Only Benefit Records with a Savings Type of Cost Reduction greater than (or equal to)
100k Annualized Cash Savings (ACS) need to be aligned with the CFO of the respective Busi-
ness Partner. For Cost Reduction BR below 100k ASC there is no alignment mandatory but ad-
missible (see section 4.1).
2.) For initiatives with a Savings Type of Cost Avoidance or Procurement Benefit and Benefit
Records greater than (or equal to) 100k ACS, the CFO alignment will be replaced by a final Con-
trolling Approval done by Controlling Procurement (Dep. 793). For Cost Avoidance of Procure-
ment Benefit Benefit Records no CFO alignment mandatory, but admissible (see section 4.2).
4.1 Savings Alignment for Cost Reduction Savings
Aim of the alignment is to get a common understanding and agreement on the

projected demand over the contract period, the savings calculation and the ex-
pected annualized contracted cash savings of the sourcing initiative.
The process applies only for Benefit records with Savings Type Cost Reduc-
tion.

4.1.1 Alignment principles
Four basic questions need to be answered for the alignment process:
When? Point in time to align savings

Key questions
With whom? Persons to align savings with
for alignment
What? Contents of the alignment
How? Form of the alignment
1. Point in time to align savings (When?)

At the end of the negotiation phase (step 4 of the 5 step sourcing process) the Commitment re-
commitment review gate (review gate 3) needs to be conducted within the
sourcing process: view gate 3
1 2 3 4 5
Sourcing
Sourcing Demand Supply Supplier
Strategy Implementation
process Analysis Analysis Selection
Development
Cost Reduction Milestone Tracking CFO

Savings
PBTS
process
Project
creation
Initiative Scoping Aligmnent
Savings Measurement
(for Initiatives with
Annualised Cash
Savings
Baseline
Estimated Contracted Contracted aligned Savings >=100k)
Reporting savings savings savings
Alignment
Process RPM
Approval
At that point in time the demand (volume, spend) of the initiative has been
determined with the business partners and the contracted savings based on
the negotiated prices have been calculated. Now Procurement needs the offi-
cial alignment with the business partners CFO in order to validate the annual-
ized contracted cash savings.
2. Persons to align the savings with (With whom?)
Regardless of the savings amount all records in the PBTS require an approval
by the responsible (regional) Performance Management department. For ap-
proval Performance Management needs at least to conduct the following Checks by
checks:
Performance
Correct baseline/savings type applied Management
Savings scenario(s) suitable
3
On the level of a sub-business unit per country

Correctness of the savings calculation
Scope of the initiative (e.g. appropriate business partners)
In the case that Performance Management has approved the correctness of
100 kEUR
the savings calculation and the annualized contracted cash savings are equal
or more than 100.000 EUR3 an alignment with the business partners CFO is threshold
required. This alignment with the CFO is a prerequisite for the savings report-
ing in PBTS.
Alignment in principal takes place for every sub-business unit on a country
level between the PBTS record owner of the sourcing initiative on Procure-
ments side and the business partners CFO. Business partners CFO on a Alignment on
sub-regional or regional level has the authority to align the savings for the sub- country level in
region or region. The corresponding CFO of our Business Partner should al-
principle
ways be responsible for the respective cost Budget, for which the claimed Sav-
ings incurred. In other words, the CFO should always be able to trace back the
impact of the claimed Savings on his own cost budget.
For initiatives generating savings below 100.000 EUR an alignment with the
business partners CFO is not required but optionally possible.
Exception:
In the case that the annualized contracted cash savings on a sub-business unit
per country are equal or more than 100.000 EUR and no business partner and Alignment with
responsible CFO can be identified, the Heads of Global Sourcing need to ap-
prove these savings. This can be for example the case if a frame agreement is Heads of Global
put in place for the whole group for a lot of different business partners (e.g. Sourcing
copy paper contract within cluster network supplies). This exception has to be
agreed on with the Controlling Procurement department at the headquarters in
Bonn.
3. Contents of the alignment (What?)

During the alignment discussions the following aspects need to be aligned:
Projected demand volume over the contract duration
Resulting annualized contracted cash savings based on negotiated financial
conditions
Scope of the initiative (subcategory, country, subdivision)
Baseline and corresponding savings type
The split of savings across regions/sub-regions/countries, in the case that the
alignment does not take place on the lowest level
Remark:
Due to the fact that aligned volumes can change in the future (e. g. more
scanners are needed due to a new acquisition), alignment on saving figures

does not mean that the calculated saving amount has a corresponding EBIT
impact.
4. Form of the alignment (How?)

The alignment with the business partners CFO has to be documented in the
Procurement note (PN); on the second page of the PN the buyer indicates that
an alignment took place. A physical signature on the Procurement note is not Documentation
required. Minutes of the alignment meeting or a confirmation on the savings by with Procure-
email can substitute the signature. At least the name of the CFO, the area of
ment Note
responsibility (e. g. name of sub-division) and location have to be clearly
stated.
The calculation sheet which has been the basis for the savings alignment to
explain the savings calculation to the CFO needs to be available on record
level and will become an annex to the Procurement note/PBTS.
4.1.2 Escalation process for Cost Reduction
If the business partners CFO does not accept Procurements suggested sav-
ings amount and alignment discussions lead to different committed savings
only these savings figures with a CFO alignment can be reported as con-
tracted aligned savings.
If no alignment between Procurement and CFO can be achieved, in a first step
Procurement Performance Management can be involved to increase transpar-
ency on the disputed amounts (e.g. baseline spend data).
If still no alignment can be achieved on the respective level, second step
needs to be the escalation in both business lines to the next hierarchy level.
4.2 Alignment process for Cost Avoidance/Procurement Benefit Savings
The following alignment procedure has been approved by the Global Procure-
ment Board (GPB) in January 2011 and has been communicated to the Pro-
curement community and to the CFOs with Q4 2010 Performance Report.
Main target of the changed process is to reduce the workload for the CFOs
(for savings types with lower impact on the CFOs cost base).

4.2.1 Alignment principles
Four basic questions need to be answered for the alignment process:
When? Point in time to get Approval of savings

Key questions
With whom? Persons to approve savings with
for alignment
What? Contents of the Approval
How? Form of Approval
1. Point in time to align savings (When?)

1 2 3 4 5
Sourcing
Sourcing Demand Supply Supplier
Strategy Implementation
process Analysis Analysis Selection
Development
Cost Avoidance Milestone Tracking

& PBTS Project
Controlling
Initiative Scoping
Procurement process creation
Approval
Savings Measurement
Benefit
Savings (for Initiatives with
Savings
Baseline
Estimated Contracted Annualised Cash
Reporting savings savings Approved by
Controlling
Savings >=100k)
Alignment
Process
RPM
Approval
The Controlling Approval will be done after the RPM approval for initiative
milestone Negotiation 1/Supplier Selection has been given. The alignment
process will start automatically (by PBTS), i.e. there is no need for the initia-
tive owner to start the alignment process by sending out emails and organising
additional time consuming alignment meetings, unless all relevant information
has been provided.
Target for Controlling Approval should be within 2 weeks after RPM approval
is given, all data/information is available and the savings calculation is in line
with the Savings handbook.
2. Persons to align the savings with (With whom?)

Regardless of the savings amount all records in the PBTS require an approval
by the responsible (regional) Performance Management department. For ap-
proval Performance Management needs at least to conduct the following
4
On the level of a sub-business unit per country

checks:
Correct baseline/savings type applied Checks by
Savings scenario(s) suitable Controlling Pro-
Correctness of the savings calculation curement
Scope of the initiative (e.g. appropriate business partners)
In the case that Performance Management has approved the correctness of
the savings calculation and the annualized contracted cash savings are equal 100 kEUR
or more than 100.000 EUR4 a Controlling Approval is required. This approval is threshold
a prerequisite for the savings reporting in PBTS.
The Controlling Approval will be done by Controlling Procurement (SD793).

First contact partner in case of missing information or discrepancies in savings
calculation will be the responsible (regional) RPM who has approved the initia-
tive at milestone Negotiation phase1/supplier selection.
3. Contents of the alignment (What?)

The Controlling Approval ensures a common and consistent treatment of all
Cost Avoidance and Procurement Benefit Savings initiatives throughout the
whole Procurement organisation and applies for all Benefit Records greater
than 100k Actual Annualised Cash Saving. Therefore, Controlling Procure-
ment approves e.g. compliance and consistency with the latest published Sav-
ings Handbook by verifying/challenging the submitted savings calculation, cor-
rectness of Savings calculation and plausibility check of underlying assump-
tions (e.g. baseline & spend volumes).
4. Form of the alignment (How?)

The alignment process will start automatically (by PBTS), i.e. there is no
need for the initiative owner to start the alignment process by sending out
emails and organising additional time consuming alignment meetings, unless
all relevant information has been provided (by the PBTS System).
After all checks have been performed by Controlling Procurement and if no fur-
ther issues came up during this process, Controlling Procurement can assure
the correctness of the claimed savings by giving a Controlling Approval in
PBTS. The Controlling Approval can only be given by the Controlling Pro-
curement department (SD793). Afterwards, the initiative will appear as aligned
in PBTS and a notification will be send out to the initiative owner. In case that a
Benefit Record can not be approved, Controlling Procurement will send out a

notification to the initiative owner and the RPM.
4.2.2 Escalation process for Cost Avoidance / Procurement Benefit
If no alignment can be achieved, next step would be the escalation on next

hierarchy level.
4.3 Benefit of the alignment process for the finance community
Due to the alignment process a closer interaction between the Finance and
Procurement community can be established:
Interface
Responsibility for Prerequisite for
transparency proper interface: between
Controlling - Adequate Saving
Sourcing Definition Procurement
Procurement
Process - Alignment with
Savings Business Partner
and business
PBTS, spend cube
Link partner
Procurement
CREST, IFRS and Business
Actual P&L Budget,

Figures Planning,
CFO Business Partner
Forecasting
Within the sourcing process saving potentials are identified by Procurement.

With a strong interface between Finance and Procurement those savings can
be fully considered within the budget, planning and forecasting phase. Thus
Finance community gets better transparency on Procurement savings initia-
tives, reflected in the actual P&L figures.

5 Special reporting and alignment cases
5.1 Special case 1: Frame agreements
5.1.1 Precondition
Savings can only be reported if the frame agreement has been re-negotiated
and better conditions in comparison to the old frame agreement could be
achieved.
Four cases need to be differentiated:
Future volume Future volume

known unknown
Business partner
Case 1 Case 3
clearly definable
Business partner
not Case 2 Case 4
clearly definable
5.1.2 Case 1 (Volume and business partner known)
If there is a clearly definable business partner for a frame agreement and the
future volume is known, the annualized volume has to be forecasted and de-
mand and savings need to be aligned with the business partner and the re-
sponsible CFO.
Example:
Global Category Manager for Sorting and Conveying Systems negotiates a
frame agreement for the buy of mail sort sequence machines. The frame
agreement covers the delivery of machines to all mail sort centers over a pe-
riod of 3 years. The demand per center has been defined during the demand
analysis. Due to full information transparency savings can be reported in
PBTS.

5.1.3 Case 2 (Volume known, business partner unknown)
If there is no clearly definable business partner but the future volumes are
known as the expected volume out of the frame agreement has no significant
variation (+- 5%) to prior years and prior years experience proved no signifi-
cant variation, an annualized volume needs to be forecasted.
Example:
A frame agreement for copy paper has been negotiated, volume has been
pretty stable over the last 3 years. The demand can be forecasted on prior ex-
periences. Based on that forecast the savings can be calculated and being re-
ported in PBTS. As there are a lot of potential business partners all over the
group the alignment can take place with the Head of Global Sourcing Opera-
tions; additionally this case has to be agreed on with the Controlling Procure-
ment department at the headquarters in Bonn.
5.1.4 Case 3 (Volume unknown, business partner known)
If there is a clearly definable business partner for a frame agreement but the
future volume is unknown, an alignment with the business partner on the ex-
pected annualized volume needs to be achieved during the demand analysis.
Therefore an annualized volume needs to be forecasted.
Example:
Global Category Manager Consulting and Professional Services is asked to
negotiate a frame agreement with a consulting company by a business unit as
they want to have a potential alternative supplier for several projects. The
Global Category Manager and the business partner agree on the share of
business granted to the respective consulting company.
5.1.5 Case 4 (Volume unknown, business partner unknown)
If there is no clearly definable business partner and unknown and/or volatile fu-
ture volumes, the basis for a savings reporting are the call-offs linked to the
frame agreement (order volume, no actual tracking).
Example:
Global Category Manager Network Supplies negotiates a frame agreement for
Printing Items. Purchasers of the whole group order their needs from this
agreement. Savings related to these call-offs can be reported in PBTS.
Savings resulting from the call-offs can only be reported for a 12 months pe-
riod after the contract start date in order to report an annualized savings
amount only.

5.1.6 General remarks to report savings out of frame agreements
The savings in general have to be reported at the end of every month.

Alignment with the business partners CFO has to take place according to the
threshold.
Calculation of savings for frame agreements with automatic renewal (no cer-
tain end date in the contract): In some cases there is no defined end date in a
frame agreement but an automatic renewal clause has been agreed on. If a
certain contract gets prolonged due to this clause, savings can only be re-
ported for the first 12 months period as annualized contracted cash savings.
5.2 Special case 2: Volume rebates if historic/comparable

baseline available
Precondition:
Savings out of volume rebates can only be reported if the frame agreement
with the rebates regulations has been negotiated and better conditions in com-
parison to the old agreement as a whole could be achieved.
Latest by the end of a 12-month-period after alignment with the CFO/end of
negotiation phase, volume rebates need to be calculated based on the con-
tract agreements.
A volume rebate saving needs to be communicated to the responsible busi-
ness partner / CFO according to the alignment rules.
The additional volume rebate for the current year is to be reported as an annu-
alized cash saving.
Remark:
Since we have a total cost of ownership (TCO) perspective savings for an ini-
tiative can only be claimed by summing up the savings from all applied savings
scenarios. An agreement with a volume rebate regulation has always a price
component apart from the rebate agreed. Thus the savings from the price re-
duction and the volume rebate of the new contract in total need to be higher
than in the old contract (otherwise there are no savings).
Calculation rule considering this TCO approach:

A saving can only be claimed if the following condition is valid
Savings resulting from price of new contract x new volume + new volume re-
bate > saving resulting from price of old contract x new volume + old volume
rebate (based on new volume)..

5.3 Special case 3: Lease vs. buy
Precondition:
The decision, whether a product shall be leased or bought is in general to be
taken after a discounted cash flow analysis supported by the template BUY
versus LEASE analysis. The required template is provided in the Intranet from
CD 64, Corporate Finance.
The example below compares the savings achieved from both alternatives.
Alternative 1: BUY of an asset

Price before negotiation: 500.000
Price after negotiation: 450.000
Life time of product: 5 years
Annualized cash savings 50.000
Alternative 2: LEASE of an asset

Lease rate before negotiation: 100.000 / year
Lease rate after negotiation: 90.000 / year
Lease period: 5 years
Savings per year 10.000 / year
To make the contribution of both alternatives comparable, the total savings
over the whole lease period (i. e. life time of the product) need to be calcu-
lated.
Thus, the annualized cash savings from the lease alternative are:
5 years x 10.000 / year = 50.000

5.4 Special case 4: Savings reporting against a price index
5.4.1 Index for labor cost driven categories
Precondition:
To adequately consider price developments in the market that cannot be influ-
enced by Procurement, the historical baseline prices need to be adjusted with
a labor cost index. Usage of this index is only permitted for the categories with
only/mainly labor cost driven prices [i.e. IT Consulting, Consulting & Profes-
sional Services, Temporary Labor, Marketing & Media and Facility Manage-
ment].
This index, issued by an official and independent source, is updated annually
as soon as reliable data for the former year is accessible. The index, and re-
spective updates, is being proposed by Corporate Category Management, ap-
proved by Controlling Procurement and communicated in the savings hand-
book.
Using an index for baseline price adjustment always leads to a variable histori-
cal baseline and thus to cost avoidance savings.
Index:
Index
Region (Price has been valid for Source
more than 12 months)
Spend weighted index, delivered from region

http://www.mom.gov.sg
Asia Pacific 0,0% http://www.mhlw.go.jp
http://www.hkeconomy.gov.hk
http://gia.info.gov.hk
eurostat, labour cost index Services

Europe 3,4% [http://ec.europa.eu/eurostat]

Germany, Austria,
3,4% [http://ec.europa.eu/eurostat]
Switzerland, Russia
U.S: Department of Labor

[www.bls.gov]
Producer Price Index Industry Data
America 1,4%
Industry: Management Consulting Services
Product: Management Consulting Services
Series ID: PCU541610541610

UK, Ireland, Middle East
3,4% [http://ec.europa.eu/eurostat]
and Africa

Example 1: Usage of an index in case of contract renegotiation
A historical price has been fixed in a contract of Procurement UK, Ireland, Mid-
dle East and Africa becoming effective March 2006. The contract is being re-
negotiated in May 2008 and thus the price has been valid for 27 months. The
historical price of 100 per unit can be adjusted with the index (3,4% as in ta-
ble above)
Calculation of variable baseline price: 100/unit+100 * 3,4/100 = 103,4 /unit.
Note: Only the labor cost related part of the baseline price can be adjusted
with that index, not extras/additional costs (e. g. travel cost).
The adjusted baseline price is 103,4 /unit. Baseline type is variable historical
baseline, savings type is cost avoidance.
Example 2: Usage of an index in case of contract prolongation without

renegotiation
In general, the conditions of frame agreements need to be checked and rene-
gotiated every year. In some cases the yearly check of frame agreement con-
ditions shows, that renegotiation of the contract wont lead to better conditions
(e. g. due to broad price increases in the market). In those cases Procurement
decides to stick to the old conditions, for example:
The old contract period was from 01.07.2006 to 31.12.2007. In January 2008
Procurement decided not to renegotiate the old price. Due to a contract clause
the contract prolongs automatically for one more year. Thus, the price is still
valid, beginning 01.01.2008.
The CCM of Marketing & Media reports savings in August 2008. The CCM ap-
plies the index since the historical price has been valid for more than 12
months (18 months in this special case, July 2006 December 2007). The
price becoming effective due to the automatic prolongation of the old price in
January 2008 is considered as the new price.

5.4.2 Index for hotels
Precondition:
To adequately consider price developments in the market that cannot be influ-
enced by Procurement, the historical baseline prices need to be adjusted with
a hotel index. Usage of this index is only permitted for subcategory hotels.
This index, issued by an official, independent source, is updated annually as
soon as reliable data for the former year is accessible. The index, and respec-
tive updates, is being proposed by Corporate Category Management, ap-
proved by Controlling Procurement and communicated in the savings hand-
book.
Index:
Region Index Source Comments
www.hkeconimy.gov. Produce Price Index 2007 (= output prices)

Asia Pacific 8,0%
hk/en/prices regarding hotels and boarding houses
eurostat: Harmonized Indices of Consumer Prices 2007,

Europe 2,2% http://epp.eurostat.ec. hotels and restaurants
europa.eu/ ("Beherbergungsdienstleistungen")

Germany, Austria,
2,6% http://epp.eurostat.ec. hotels and restaurants
Switzerland, Russia
http://data.bls.gov/PD
Comsumer Price Index 2007 (CPI) des US-
America 0,1% Q/servlet/SurveyOutp
Departments of Labour
utServlet

UK, Ireland, Middle East
2,2% http://epp.eurostat.ec. hotels and restaurants
and Africa

6 Category specific savings guidelines
The savings framework needs to be applied to all categories within Procure-

ment. The following chapters describe the savings methods that are relevant for
the various categories.
6.1 Overview on clusters and categories described
DEUTSCHE POST DHLs sourcing structure:
Services Operations
IT & Network Production

Services Aviation Ground Fleet Site Services Transportation
Communication Supplies Systems
Logistics &
PCs & Peripherals C onsulting & Aviation Fuel Packaging W arehouse Cars & vans Facility Air Transportation
Prof. Services Management
Systems
Scanners, Label
Software Marketing & Media Flight & Ground Corporate W ear Printers, Measu- Fleet Services Utilities Ground
Operations Transportation
rement Systems
Servers Travel & Aircraft Costs Marketing & Security Heavy Vehicles & Temporary Labor Sea Transportation
Entertainment Advertising Print Equipment
Aircraft Sorting & Combined

IT Consulting Operational Print Ground fuel
Maintenance C onveying System s Transportation
Air N avigation
Communication Office Supplies
Charges
IT Operation Administrative &

Services General
Status as of 12th March 2010
Within the next chapters calculation methods for each cluster/category are described.

6.2 Ground Fleet
6.2.1 Heavy Vehicles & Equipment; Cars & Vans
Overview on important savings scenarios and calculation formulas ap-

plied in the category
Savings scenario Calculation formula
Scenario SR1: Product cost reduc- (Total life cost/km/month of previous

tion year "new" negotiated total life
cost/km/month) x total km of vehicle life
"new" x total vehicle life in months
"new" x number of purchased vehicles
Scenario SR2: New products buy (Average offer total life cost/km/month
(competitive bidding) new negotiated total life cost/km/month)
x total km of vehicle life "new" x total
vehicle life in months "new" x number of
purchased vehicles
Scenario SR3: Free of charge ex- Volume x value of free of charge extra
tras
Scenario SR4: Volume reba- Volume x rebate/incentive per pur-

te/incentive collection chased unit.
Scenario SR5: Lease vs. buy (Total life cost/km/month of purchasing

total life cost/km/month of leasing) x
total km of vehicle life x number of vehi-
cles leased
Scenario SR7: Longer product life (Old total life cost/km/month new total
life cost/km/month) x total km of vehicle
life x number of vehicles of category
Scenario PR1: Process improve- (Number of FTEs for original process

ment number of FTEs for new process) x
Cost per FTE
Scenario AR2: Payment & delivery (Old payment terms new payment
terms terms) x annual contracted spend
under new terms x WACC/day
Scenario CR2: Dispute resolution (Existing average cost effect of dam-
ages per vehicle category new aver-
age cost effect of damages per vehicle
category) x volume

Savings need to be calculated separately for all vehicle categories in scope.

Calculations need to be done on a country-level, information will be broken
down into total cost of ownership per vehicle category per km and month (al-
ternatively on a total cost level).
Independently whether vehicles are leased or purchased, total cost of owner-

ship will be calculated the following way (as far as data are available):
List price
- applicable discounts
+ delivery charge (including pre delivery inspection) = Net Price
+ maintenance and/or repair (except damages)
+ tires
(+ "crash tests" spare parts and labour)
- residual value
+ calculated fuel consumption
+ insurance and taxes
+ management fee
+ interest = Total life cost
/ total km of vehicle life = Total life cost per kilometer
Remark: This calculation can be applied for trailers, swap-bodies and contain-
ers analog with the necessary components.
Baseline:
If applicable, always a historic baseline should be chosen:
If a historic or comparable baseline is not applicable, use guidelines of savings

scenario "New products buy" to calculate savings.
Calculation of savings:
(Total life cost/km/month of previous year "new" negotiated total life cost/km
resp. month) x total km of vehicle life "new" x total vehicle life in months "new"
x number of purchased vehicles
To avoid complication of fluctuating list prices and consequent changing sav-
ings numbers, savings per vehicle will be frozen for duration of contract period
based on list price in negotiation and savings credits will be awarded for each
purchased vehicle.

In case of new, not previously purchased vehicle categories, (e.g. interim size
between small and medium commercial vehicles, or vans with a much bigger
shipping volume than previously bought vehicles) or when vehicle specifica-
tions change significantly over time (old vehicles barely comparable with new
vehicles) a new baseline needs to be set up:
Baseline:
If there are three or more commercially and technically approved supplier of-
fers the average offer total life cost of the three best offers will be used; if there
are fewer than three commercially and technically approved supplier offers the
best solicited offer total life cost will be used as baseline.
(Average offer total life cost/km resp. month new negotiated total life
cost/km/month) x total km of vehicle life "new" x total vehicle life in months
"new" x number of purchased vehicles5
Free of charge extras (e.g. free of charge vehicles or vehicle parts e.g. such as
navigation systems), which are not included in the lease rate/price, and have
not been part of the product/service offering of precedent purchases need to
be deducted from lease rate or purchasing price.
Baseline:
Value of free of charge extra in based on competitive quote of fair market
value.
Volume x Value of free of charge extra
Negotiated contract with supplier comprehends rebates on volume or incen-

tives. Rebate/incentive has not been included in previous buys.
Baseline:
Value of rebate or incentive in .
Volume x rebate/incentive per purchased unit.
5
For trailers, swap-bodies and containers calculations will be broken down into total cost of ownership per vehicle category per month.

For some countries, where vehicle categories are purchased, lease of vehicle
categories might be a viable option (or vice versa). If active involvement of
Procurement (e.g. through negotiation of prices) leads to a decision, that vehi-
cles will be leased (or purchased) in the future, the difference between both
options (lease vs. buy) can be calculated as savings.
Baseline:Compare total life cost "leasing" per category/km resp. month vs. to-
tal life cost "purchasing" per category/km/month.
(Total life cost/km resp. month of purchasing total life cost/km/month of

leasing) x total km of vehicle life x number of vehicles leased
Respectively: (Total life cost/km resp. month of leasing total life cost/km
resp. month of purchasing) x total km of vehicle life x number of vehicles pur-
chased6
Some countries or entities have not optimized product lifetimes of vehicles in

use. By extending product lifetime, additional savings can be created.7
Baseline:
Total life cost with previous used, shorter product life.
(Old total life cost/km resp. month new total life cost/km resp. month) x total
km of vehicle life x total vehicle life in months x number of vehicles of category8
Scenario PR1: Process improvement
Introduction of telematic systems might reduce overtime and ease of route

planning and therefore lead to cost improvements in business processes. Im-
provements can be calculated by measuring vehicle running times, vehicle us-
age, vehicle locations, route planning etc. It has to be defined to which degree
savings can be contributed to Procurement.
6
For trailers, swap-bodies and containers calculations will be broken down into total cost of ownership per vehicle category per month
7
Adjustment by additional rising costs (e.g. maintenance, fuel consumption) need to be included in total life cost calculations.
8
For trailers, swap-bodies and containers calculations will be broken down into total cost of ownership per vehicle category per month

Baseline:
Costs for business processes before improvement.
(Number of FTEs for original process number of FTEs for new process) x
cost per FTE per year
Scenario AR2: Payment & delivery terms
Some suppliers provide free shipment of vehicles (i.e. transport from vendor to
station) leading to cost advantages (if not already included in TCO calcula-
tions).
Baseline:
Cost of shipment (not included in previous contracts/by other suppliers).
(Old costs of delivery terms New costs delivery terms) x number of vehicles
of category
Average cost effect of damages in unit price for baseline and newly negotiated
prices (e.g. by standardized damage price catalogue) need to be included into
the savings calculation.
Baseline:
Existing average cost effect of damages per vehicle category
(Existing average cost effect of damages per vehicle category new average
cost effect of damages per vehicle category) x volume

6.2.2 Ground Fuel

Scenario SR4: Volume reba- Depending on the market habits four

te/incentive collection formulas can be applied:
(New rebate/liter old rebate/liter) x vol-

ume
(Old add on/liter new add on/liter) x

volume
(Market index of rebate decrease/liter

DEUTSCHE POST DHL rebate de-
crease/liter) x baseline Volume
(Market index of add on increase/liter

DEUTSCHE POST DHL add on in-
Savings need to be calculated separately for all items bought via fuel card in
scope. Calculations need to be done on a country-level.
There are two different methods for fuel price determination, top down or bot-
tom up.
Top down:
DEUTSCHE POST DHL gets a fixed rebate based on the pump price or list
price.
DEUTSCHE POST DHLs rebate increase is better than the market rebate
increase measured via an index.
Bottom up:
DEUTSCHE POST DHL gets a fixed add on based on market index price such
as Platts.
DEUTSCHE POST DHLs add on increase is better than the market add on
increase measured via an index.
Therefore the saving can either result from an increase of the rebate on top
down pricing structure or a decrease of add on on bottom up pricing structure.
Externally the world fuel price is highly volatile due to supply and demand, in-
ternally Procurement is constantly reviewing the condition for fuel prices that

DEUTSCHE POST DHL pays. Due to the high dependence on very limited
number of fuel suppliers, it is not always the case that the rebate or add on can
be improved. Especially if the same tender has been conducted several times.
Therefore market indexes (for example market add on for the UK from John
Hall Associates) are used to measure the Procurement effort of cost avoid-
ance.
Baseline:
If applicable, always a variable historic baseline should be chosen, since mar-
ket price is ever changing. It only makes sense to compare the total rebate or
total add on that DEUTSCHE POST DHL achieves:
Old rebate or old add on
(New rebate/liter old rebate/liter) x volume

(Old add on/liter new add on/liter) x volume
(Market index of rebate decrease/liter DEUTSCHE POST DHL rebate de-
(Market index of add on increase/liter DEUTSCHE POST DHL add on in-
6.2.3 Fleet Services: Fleet-Rental Cars


Scenario SR1: Product cost re- (Baseline rate new rate) x # of
duction days/months/weeks/km
Scenario SR4: Volume reba- Volume x rebate/incentive per purchased unit
te/incentive collection
Scenario AR1 Manual transac- (Historic booking cost current booking cost) x
tion reduction # of bookings
Scenario CR2: Dispute resolu- Dispute amount/liability + HR handling costs

tion negotiated settlement amount.

Rental Car sourcing will be carried out along the following pricing matrix:
Car Type Daily rate Weekly rate Monthly rate Price/km
Type 1 Price Price Price Price
Type 2 Price Price Price Price
Type x Price Price Price Price
The following parameters have to be considered to ensure comparability:
Delivery/return rate
during business hours

outside business hours
Refuel handling
Second driver option
One way rate
national
international
Free mileage
Retention (deductible)
Sourcing will result in a portfolio of suppliers approved for a defined region.
Some of them might have been suppliers in the past already, some will be
new.
Baseline:
Baseline will be verified for each car type and duration combination separately.
If appropriate, there will be baskets either for each car type and all rental peri-
ods or each rental period with all car types. Within these baskets the baseline
needs to be weighted according to the entity demand profile in the respective
category.
Baseline prices have to be based on the same parameters (one way, retention
etc.)
Due to the fact that the choice of a rental car company (out of the approved
supplier portfolio) is mainly driven by local preferences of the requisitioner,

there are two different options for a reference baseline for each combination:
If a supplier has been used previously, the baseline is created based on the
historic prices with this supplier
If a supplier has not been used previously, the baseline price is created as
historic average price of all previous suppliers for the specific type/duration
combination
If there is a new product buy (only applicable if there is a new car type in the
portfolio or if a new duration type is contracted) the baseline has to be calcu-
lated as follows:
Three or more commercially and technically approved supplier offers: Average

of the best three offers
Less than three commercially and technically approved supplier offers: best
offer rate
New product buy is not a justified savings scenario if there is only an improve-
ment of specifications of cars offered within a particular car type category.
(Baseline rate new rate) x # of days/months/weeks/km
Negotiated contract with supplier comprehends rebates on volume or similar

incentives. Rebate/incentive has not been included in previous buys.
Baseline:

Handling can be improved by online rental car booking platforms (already of-
fered by rental car companies).
Baseline:
Historic transaction volume (# of bookings) and average FTE cost per booking
(Historic booking cost current booking cost) x # of bookings
Future savings potential: Invoice complaints will be compensated by a com-

pensation flat fee for a defined profile of complaints.
Baseline:
Amount of dispute/liability claimed by the supplier and HR handling costs.
Dispute amount/liability + HR handling costs negotiated settlement amount.

6.3 IT & Communication
6.3.1 Communication


Scenario SR1: Product cost re- (Last price paid negotiated contract price) x
duction volume
Scenario SR 2: New product Three or more commercially and techni-
buy cally approved supplier offers: (average
offer price of the best three offers nego-
tiated contract price) x volume
Less than three commercially and techni-
cally approved supplier offers: (best offer
price negotiated contract price) x volume
Scenario SR3: Free of charge Volume x value of free of charge extra

extras
Scenario SR 4: Lease vs. Buy (Cost of purchasing - leasing price) x volume
Scenario SR 5: Make vs. Buy Annual cost of own manufacturing = (labor
cost + product cost + overhead cost) (annual
full service price + coordination costs)
Scenario VR1: Demand man- (Last volume negotiated new volume) x ne-
agement gotiated contract price
The Communications category contains the following subcategories:
Voice
Services
- Local/National
- International
Hardware
- Hardware
- Software
- Maintenance
Mobile
Services

- Voice
- Data/SMS
- Hardware
Data
Services
- Domestic
- International
Hardware
Hardware Hubs & Routers
Software
Maintenance
Conferencing System
Savings gained through cost reduction have to be calculated differently de-

pending on affected subcategory:
Baseline:
Voice & Mobile:
Historic price paid per minute/number/destination for each county and division.
Instead of tracking savings against a baseline for each contracted destination it
is also possible to define a weighted average baseline containing all destina-
tions for a county/division. Destinations in the basket have to be weighted ac-
cording to the spend profile for each country/division. The basket profile has to
be reviewed after 12 months at latest!
Domestic Data Services:

Price paid per line for defined capacity.
Hardware:
Last price paid per unit.
If specifications of purchased products have changed, baseline has to be com-

posed by:
Using historic prices of previous product and

Adding the price component for the "new specification"
or
Composing baseline by combining price components of previously bought
products.
Software:

If software (same release version) has been bought previously: old price per li-
cense.
If a new software release is being sourced: see "New product buy".
Maintenance:
If service requirements have not changed significantly: Old cost for service.
If service requirements have been downgraded: see "Volume reduction".
If as savings scenario is a combination of cost reduction and service down-
grade, baseline has to be calculated by applying the more significant of both
scenarios.
Voice & Mobile:
(Historic price paid per minute for each basket - new price paid per minute for
each basket) x volume (minutes)
Domestic Data Services:
(Old price paid per line for defined capacity new price paid per line for de-
fined capacity) x # of lines
Hardware:
(Last price paid per unit new price per unit) x # of units
Software:
If software (same release version) has been bought previously: (old price per
license new price per license) x # of licenses
If a new software release is being sourced: see "New product buy".
Maintenance:
If service requirements have not changed significantly: (Old cost for service
new cost for service) x volume
If service requirements have been downgraded: see "Volume reduction"
Scenario SR2: New product buy
Sometimes there might be introduced a product for the business which has
never been purchased before (new hardware e.g. video conferencing or new

software e.g. upgrades). If there are no price components available baseline
has to be derived from initial RFP responses.
Baseline:
The initial RFP responses/price offers from all suppliers will be used as the
baseline price. If there are three or more commercially and technically ap-
proved supplier offers the average offer of the three best offers will be used; if
there are less than three commercially and technically approved supplier offers
the best offer cost will be used as baseline.

age offer price of the best three offers negotiated contract price) x volume
Less than three commercially and technically approved supplier offers: (best
offer price negotiated contract price) x Volume
Scenario SR3: Free of charge extras (only Fixed Voice)
Negotiated contract with supplier comprehends free of charge extras which are
not included in the price, and have not been part of the product/service offering
of precedent purchases (e.g. training, free headsets).
Baseline:
value.
Scenario SR4: Lease vs. buy (only Voice Mobile & Data Hardware)
For these subcategories, where products are purchased, lease of products

might be a viable option. If active involvement of Procurement (e.g. through
negotiation of prices) leads to a decision, that products will be leased in the fu-
ture, the difference between both options can be calculated as savings.
Baseline:
ment, overhead, product replacements, finance costs) broken down into
monthly cost rate for previous product life cycle.
(Cost of purchasing per month monthly lease rate) x # of units x # of months

Complete Communications category can be outsourced to full service provider.
Internally there remains only coordination function.
Baseline:
Actual cost of own handling (labor cost + material cost + overhead cost)
Annual cost of own manufacturing (labor cost + product cost + overhead cost)
(annual full service price + coordination costs)

incentives. Rebate/incentive has not been included in previous buys. If there
was a rebate included in previous buys the rebate has to be integrated into the
unit prices.
Baseline:
Volume x rebate/incentive per purchased unit

been reduced through active negotiations by Procurement. (e.g. more effective
usage of lines; HR policies)
Baseline:
Last volume of product and/or service purchased.
(Last volume new volume) x negotiated contract price
Shut down of sites might result in obsolete communications equipment that

can be installed in other sites.
Baseline:
Demand of communications equipment for new site.
Avoided cost for purchase of new equipment through effective relocation

activities by Procurement.
6.3.2 IT Consulting


Scenario SR1: Product cost re- (Last rate paid negotiated contract rate) x
duction volume
Scenario SR2 Free of charge Volume x value of free of charge extra
extras
Scenario VR1: Demand man- No. of hours/days shifted from more expensive
agement skill profile/consultancy to less expensive skill
profile/consultancy x price difference between
the two skill profiles/two consultancies be-
tween the volume shifted
Regarding usage of an index refer to Index for labor cost driven categories
Savings are calculated separately for:
Each skill profile that is defined centrally (e.g. database administrator)

Each level of experience (e.g. senior developer, junior developer...)
Prices are reduced by renegotiating the charged hourly rate for each skill set.
Baseline:
Historic hourly pay rates have to be used as a baseline.
All IT consulting contracts which do not refer to frame contracts but are pur-
chased as a project initiative and where neither a historic baseline nor a com-
parable baseline exists the baseline has to be calculated as the average of the
best three commercially and technically approved offers. If there are less than
three offers it has to be referred to the best commercially and technically ap-
proved offer.
(PBASELINE - PNEW) *Q
PBASELINE = previous hourly pay rate
PNEW = new hourly pay rate

Q = volume (hours invoiced)
Free of charge extras might be travel expenses, software, IT infrastructure or

free additional consulting days which will nor be charged or be provided for
free by the IT consultants.
Baseline:
value.

Baseline:
Scenario VR1: Demand management
Consulting demand is steered towards less expensive skill profiles and/or to a

less expensive consultancy. By providing transparency on demand of entities it
can be benchmarked that some entities might have too sophisticated require-
ments.
Baseline:
Cost for the previous used skill profiles/consultancies
(No. of hours/days shifted from more expensive skill profile/consultancy to less

expensive skill profile/consultancy) x (Price difference between the two skill
profiles/two consultancies between the volume shifted)

6.3.3 PC's and Peripherals


duction volume
Scenario SR2: New products Three or more commercially and technically
buy approved supplier offers: Average offer price
of best three offers negotiated contract price
Less than three commercially and technically
approved supplier offers: best offer price ne-
gotiated contract price
Scenario SR 7: Longer Product Standard leasing rate x reduced leasing rate x
Life volume (months x units)
Scenario AR 1 Manual transac- (Old transaction costs new transaction costs
tion reduction incl. transaction fees for platform provider) x
(number of transactions)
Scenario IR 1: Inventory reduc- (Historic book-value of company owned inven-
tion tory current book value of reduced inventory)
x (cost of capital or total carrying costs)
Prices for a defined product and/or service have been reduced through active
negotiations by Procurement.
Even though there are continuous improvements of the products offered on the
market prices remain relatively stable (or at least fluctuate insignificantly
around a stable price). Thus market price fluctuations will not be taken into
consideration in any savings calculation.
The PCs and peripherals category comprises the following subcategories:
PCs
Monitors
Office printers
Office scanners
High speed printers
Photocopiers

Peripherals
PC Maintenance
Audio/Visual Equipment
IT Consumables
Savings tracking will be done on the above mentioned subcategory level.

Wherever appropriate there are baskets for each product category containing
various products and/or specifications (e.g. flat screen monitor basket: 15;
17, 21).
Baseline:
Baseline will be derived form historic prices for the similar product classifica-
tion. A product has to be characterized to be similar unless one of the following
points apply:
Business requirements have changed significantly and can not be supplied out
of the current business portfolio
There is a new corporate guideline defining the configuration of a new "stan-
dard desktop PC"
Pure standard product improvements by suppliers which are characteristic for
the market do not justify adjustments of the baseline.
Adding new features to a standard product configuration does not justify quali-
fying a product to be a "new product buy".
Baselines has to be composed by:
Using historic prices of previous product and
or
products.
In those cases where savings are tracked on a basket basis, baseline has to
be an average weighted baseline reflecting demand for each country/division
combination separately.
Sometimes there might be introduced a product for the business which has

never been purchased before (e.g. DVD burner). If there are no price compo-
nents available baseline has to be derived from initial RFP responses.
Baseline:

age price of the best three offers negotiated contract price) x volume
For some subcategories, where products are purchased, lease of products

might be a viable option (or vice versa). If active involvement of Procurement
(e.g. through negotiation of prices) leads to a decision, that products will be
leased (or purchased) in the future, the difference between both options (lease
vs. buy) can be calculated as savings.
Baseline:
ment, overhead, maintenance) respectively actual cost of leasing
(Cost of purchasing - leasing price) x volume

Respectively: (Cost of leasing purchase price) x volume
Extension option for leasing contracts might result in a reduction of monthly

leasing rates. (e.g. standard 36 month leasing term is extended to optional fur-
ther 24 months for reduced monthly rates).
The buyer of printers was able to find a supplier who offers printers that have a
an expected product life of 5 instead of 4 years. DEUTSCHE POST DHL
therefore can reduce the yearly amount of printers.
Baseline:
Previous leasing term and monthly standard leasing rate.

Standard leasing rate x reduced leasing rate x volume (months x units)
Order process will be simplified by online catalogue ordering platforms.
Baseline:
Old transaction costs and (HR cost)
(Old transaction costs new transaction costs incl. transaction fees for plat-
form provider) x (number of transactions)
Scenario IR1: Inventory Reduction
(applicable for IT consumables)
Due to active involvement of Procurement inventories (e.g. stock) will be re-

duced leading to significant cost savings. This might be achieved by phasing
out own warehousing of office supplies and negotiating sufficient delivery
terms with suppliers instead.
Baseline:
Costs for inventory surplus including:
Financing cost
Warehousing cost
Real estate
HR cost
Order processing cost
Helpdesk cost
Invoicing cost
Pick and pack
Parcel packing (HR costs)

Delivery charges
(Historic book value of company owned inventory current book value of re-
duced inventory) x (cost of capital or total carrying costs)

6.3.4 Servers


duction Volume
Scenario SR2: New products Three or more commercially and techni-

buy cally approved supplier offers: (Average
offer price of the best three offers nego-
tiated contract price) x volume
cally approved supplier offers: (Best offer

Scenario VR1: Demand man- Capacity requests addressed to Procurement
agement which have finally been satisfied by providing
existing server capacity x equivalent order
price under new conditions
The Server category comprises the following subcategories:
Server
NT
UNIX
AS 400
Storage
Tape backup
Support/Maintenance
Data Centre Network Tech.
Mainframes
Savings are primarily achieved by product cost reduction. Even though there
are continuous improvements of the products offered on the market prices re-
main relatively stable (or at least fluctuate insignificantly around a stable price).
Thus market price fluctuations will not be taken into consideration in any sav-
ings calculation.
Baseline:
Baselines either refer to a server standard configuration or to a server family to

which the different configurations can be allocated to.
Baseline prices will be historic prices for the standard configuration or the re-
spective server family.
Sometimes there might be introduced a new server family for the business
which has never been purchased before. If there are no components available
baseline has to be derived from initial RFP responses.
Baseline:


Baseline:
Value of rebate or incentive in EUR
Procurement tries to steer demand towards server space sharing instead of

purchasing new machines. This would lead to more efficient usage of server

capacity in the group.
Baseline:
Last volume of server capacity purchased.
Capacity requests addressed to Procurement which have finally been satisfied

by providing existing server capacity x equivalent order price under new condi-
tions
6.3.5 Software


Scenario SR1: Product cost re- (Last license fee paid negotiated contract li-
duction cense fee) x volume
Scenario SR 2: New product Three or more commercially and techni-

buy cally approved supplier offers: Average of-
fer price of best three offers negotiated
contract price
cally approved supplier offers: best offer
price negotiated contract price

extras
Scenario VR1: Demand man- Demand addressed to Procurement which can
agement satisfied out of existing licenses x current soft-
ware license fees
The software category comprises standard software products as well as cus-

tomized software products.
Whereas standard software product costs are mainly driven by license and
maintenance costs customized software has a significant human resources re-
lated cost component.

Prices for a defined software product and/or maintenance service (prod-

uct/service basket) have been reduced through active negotiations by Pro-
curement (e.g. renegotiation of current contracts). Product and/or service have
been purchased on a recurring basis with similar scope of services/quality.
Baseline:
Standard software products:
Use last current price for product licenses and maintenance as baseline ("his-
toric" baseline).
If this is not possible (e.g. software updates with additional price relevant func-
tionalities) baseline has to be composed by:
Using historic prices of previous software product and

or

software products.
Customized software:
In those cases where product costs are mainly characterized by standard

software purchase with minor customization efforts savings have to be tracked
according to the standard software scenario by either leaving out the HR cost
component or (if appropriate) applying the same savings rate to the HR cost
component.
If customization is the key cost component baseline price has to be derived as

follows:
Customization contract is based on charged rates per FTE: previously charged

rate per FTE for comparable software development offers
Contract is based on deliverable: see "New Product buy"
Standard Software:
Using a historic baseline: (Last license fee paid negotiated contract license
fee) x volume
Using a comparable baseline: (Last license fee paid for comparable compo-
nents negotiated contract license fee) x volume
Customized Software:
(Previously charged rate per FTE new charged rate per FTE) x charged

hours/days
In cases where new software products are purchased or where software prod-
ucts require a high significant amount of customization which has not been re-
quired previously baseline has to be derived from initial RFP responses.
Baseline:

not included in the price, and have not been part of the product/service offering
of precedent purchases (e.g. free product maintenance for 1 or 2 years).
Baseline:
value.

been reduced through active negotiations by Procurement. This might be
achieved by introducing a software license inventory tool by Procurement.
Baseline:
Stock of not used software licenses
Demand addressed to Procurement which can satisfied out of existing licenses

x current software license fees

See scenario "demand management"
See scenario "demand management"
6.3.6 IT Operation Services

Scenario SR1: Renegotiation (Last price paid Negotiated contract

price) x volume
Scenario SR2: New products (ser- Three or more commercially and

vice) buy technically approved supplier offers:
Average offer price of best three of-
fers negotiated contract price
Less than three commercially and
technically approved supplier offers:
best offer price negotiated con-
tract price
Scenario SR3: Free of charge ex- Value of free of charge extras x volume
tras
Scenario SR4: Volume reba- Rebate/Incentive per purchase unit x

te/incentive collection volume
Scenario SR6: Make vs. buy Cost of own service delivery (incl. staff
+ HW + SW + maintenance + ser-vice +
financing) purchase price
Scenario VR1:Demand manage- Last volume negotiated new volume)

ment x negotiated contract price
Scenario CR2: Dispute Resolution Dispute amount/liability negotiated

settlement amount
Scenario SR1: Renegotiation
Prices for defined services or products have been reduced through active ne-
gotiations by Procurement.

Prices per defined Unit (e.g. price per GB disc space, MIPS, price per UHD
ticket)
Baseline:
Last price paid for the service/product.
(Last price paid Negotiated contract price) x volume
Scenario SR2: New products (service) buy
This scenario applies where a product or service is sourced that has never
been bought before.
Baseline:
The initial RFP responses are used as the baseline price. The baseline price
will be calculated as average of all commercially and technically approved of-
fers. Extending an existing contract with new products, the first commercially
and technically approved offer will be used as a baseline.
(Average offer price of three best offers negotiated contract price ) x volume
or
(Best RFP offer price negotiated contract price) x volume
not included in the price, and have not been part of the service/product offering
of precedent purchases. E.g.: The standard working place (desktop services)
will be enhanced by an additional software tool, or an additional hardware
component (free of charge USB-stick).
Baseline:
value
Value of free of charge extras x volume

incentives. Rebate/Incentive has not been included in previous buys. If there
was a rebate included in previous buys the rebate has to be integrated into the

unit price.
Baseline:
Value of rebate/incentive in EUR
Rebate/incentive per purchase unit x volume
Contracts can consist of services (single managed services or combined ser-

vices) like:
Network Services
Desktop Services
Operation Services
Helpdesk Services
Application Management Services
Hosting / Housing Services
Web Services
Business Process Outsourcing
The services includes normally the following cost items:
Hardware
Software
Maintenance
Service (personnel expenditure)
Financing
Baseline:
A business-case covering all services over the planed contract period has to
be created. The baseline calculation has to follow the proper TCO-principles.
As a historic baseline the overall costs from previous years shall support the
preparation of the business case.
Cost of own service delivery (incl. staff + HW + SW + maintenance + service +

financing) purchase price
If its not possible to calculate a business case with historical or comparable
baseline, than the average price of the best three commercially and technically
approved RFP offers will be used as the baseline according to the scenario
new products buy

Scenario VR1: Demand Management

demand.
Baseline:
Scenario CR2: Dispute Resolution
Conflicts with suppliers arise because of differences in interests. Fuzzy or

missing definitions in the service-scope can lead to supplementary claims from
the supplier. Procurement might resolve disputes through negotiations. Reso-
lution of dispute might lead to significant cost savings.
This scenario applies for disputes which are higher than 1 million EUR, or
which exceeds at least 3% of the annual contractual spend.
Baseline:
Amount of dispute claimed by the supplier. Issue verification by Provider-
Management/Procurement.
Dispute amount negotiated settlement amount
6.4 Network Supplies
6.4.1 Corporate Ware


Scenario SR1: Product Cost (Last price paid negotiated contract price) x
reduction volume
Scenario SR3: New Product (Average offer price new negotiated price) x
buy Volume

extras

The Corporate Wear category comprises the following subcategories:
Uniforms
Protective Wear
Textile Cleaning
rent contracts, change of supplier etc.). Product and/or service have been pur-
chased on a recurring basis with similar scope of services/quality.
Baseline:
Use last current price for product as baseline ("historic" baseline).
As cost in corporate wear are characterized by a variety of factors summing up
to landed cost a valid calculation from a TCO perspective needs to reflect the
following cost components:
Ex works production prices

Transportation cost from production site to final destination
Quota cost
Customs/duties
Warehousing cost
Management cost
Financing cost
Order application cost
In case of specification changes/improvements they have to be reflected in a

comparable baseline. Any additional treatments to garments to improve wearer
comfort (e.g. anti-wrinkling applications) need to be priced separately and
added to the historic cost of the previous specification.
Using a historic baseline:

(Last price paid for product negotiated contract price) x volume
Using a comparable baseline:

(Last price paid for comparable components negotiated contract price) x
Volume
Sometimes there might be introduced a garment for the business which has
never been purchased before. If there are no price components available
baseline has to be derived from initial RFP responses.
Baseline:

Free of charge can be considered if this has not been apportioned to unit
prices in the "price reduction" scenario.
Baseline:
Value of free of charge extra in based previous charges
Volume x value of free of charge extra per item
6.4.2 Office supplies


Scenario SR1: Product cost Using a historic baseline:
reduction (Last price paid for a product negotiated con-
tract price) x volume
(Savings in % for old basket price vs. savings in
% for new basket price) x spend volume for all
items belonging to the basket

(Last price paid for comparable components
negotiated contract price) x Volume
Scenario SR3: New product Three or more commercially and technically
buy approved supplier offers: (average offer
price of the best three offers negotiated
contract price) x volume
Scenario SR 6: Longer prod- (Previous unit price x previous volume of units)

uct life (new unit price x volume of units)
Scenario SR 7: Inflation (price (Factor for avoided increase) x (volume)
freeze)
Scenario VR1: Demand man- (Last volume negotiated new volume) x nego-
agement tiated contract price
Scenario AR1 Manual trans- In case of reduced transactions: (Historic trans-

action reduction actional volume current average transactional
volume) x (average transaction costs)
Respectively in case of reduced transaction
costs: (Old transaction costs new transaction
costs) x (number of transactions)
Scenario AR 2: Payment & (Old basis of delivery terms new delivery
delivery terms terms) x annual spend under new terms
Scenario IR 1: Inventory re- (Historic book-value of company owned inven-

duction tory current book value of reduced inventory) x
(cost of capital or total carrying costs)
The office supplies category comprises the following subcategories:

Advertising goods & Give-away
Office paper
General stationary
Office furniture
Canteen Items
Medical supplies & Equipment
Other office supplies
Savings scenarios apply differently to the various subcategories:

Advertising Office General
Savings scenario Goods Paper Sationary
Scenario SR1: Product cost re- (x) X X
duction
Scenario SR2: New products X
Buy
Scenario SR 7: Inflation (price X
freeze)
Scenario VR1: Demand man- X
agement
Scenario AR1 Manual transac- X
tion reduction
Scenario AR 2: Payment & de- X
livery terms
Scenario IR 1: Inventory reduc- X (DPAG)
tion
rent contracts, change of supplier etc.). Product and/or service have been pur-
chased on a recurring basis with similar scope of services/quality.
Baseline:
Use last current price for product as baseline ("historic" baseline).
In the office paper subcategory savings will be tracked in the following specifi-
cation types:
Budget paper
Premium paper
Recycled paper
Thus baselines have to be defined for each specification type.
Sometimes it is not manageable to define a baseline for each product in a sub-
category. In such cases (e.g. general stationary) baselines are represented by
defined baskets or core item lists:
6.4.2.1 Defining a basket

Each subcategory can contain various baskets of products. Within each basket
there are numerous products each represented in a volume that reflects the
spend profile for a country and/or division.
Example:
3x item A

1x item B
20x item C
Historic prices will now be defined as sum price for each basket.
6.4.2.2 Defining a core item list

If it is not manageable to define baskets comprising all items that are in scope
there is an option to limit the tracking approach by defining a core item list.
Core items are all items which potentially can be allocated into one basket and
which
Represent the items with major spend volume
Are exemplary for various other minor items in the same basket
Baseline will be defined similarly to the basket baseline but can be limited to
the core items. Savings for all items which are in the same basket but which
are not a core item will be measured by applying the core item list baseline.
If specifications of purchased products have changed, baseline has to be com-

posed by:
using historic prices of previous product and
adding the price component for the "new specification"
or
composing baseline by combining price components of previously bought
products.
Using a historic baseline:

(Last price paid for a product negotiated contract price) x volume
(Savings in % for old basket price vs. savings in % for new basket price) x
spend volume for all items belonging to the basket

(Last price paid for comparable components negotiated contract price) x
Volume
(applicable for advertising goods & Give-away)

Sometimes a product might be introduced for the business which has never
been purchased before. If there are no price components available baseline
has to be derived from initial RFP responses.

Baseline:

(applicable for office paper only)

In case of substantial increase/decrease of market price due to volatile pa-
per/pulp raw material price index baseline can be adjusted according to per-
centage of raw material price change and proportion of raw material in product
(degree of dependency).
Baseline:
Factor for avoided increase = (Average inflation rate for time period)
(Factor for avoided increase) x (volume)
(applicable for general stationary)

Introduction of product catalogues and/or core product lists to the business
(e.g. via ordering platforms) with a restricted number of items that are allowed
can reduce spend outside office supplies scope (phasing out items from a
catalogue). This might be supported by offering substitute products.
Baseline:
Last volume of product purchased and product unit price.
(Last volume purchased remaining volume) x previous unit price (volume

of substitute product x unit price)

Procurement activities/negotiations leading to a decrease in transaction costs

or total number of transactions. Lever might be an increase in automated
transactions (EDI, EFT, ERS, barcoding etc.) and/or reduced manual transac-
tions.
Example:
By introducing electronically monthly invoices for network supplies the number
invoices for that category can be cut by 20%.
Baseline:
Historic transaction volume (in case of reduced transactions) and old transac-
tion costs (in case of reduced transaction costs).
In case of reduced transactions: (Historic transactional volume current aver-

age transactional volume) x (average transaction costs)
Respectively in case of reduced transaction costs: (Old transaction costs
new transaction costs) x (number of transactions)
Procurement involvement resulting in a change of delivery terms leads to sub-

stantial cost advantages. This might be achieved by restructuring the geo-
graphical scope for suppliers which results in reduced logistics cost (e.g. re-
duced pick and pack costs).
This scenario can only be applied if the logistics costs are not covered in the
product cost reduction scenario.
Baseline:
Cost related to old delivery terms with historic quantities.
(Old basis of delivery terms new delivery terms) x annual spend under new
terms

(applicable for general stationary)

duced leading to significant cost savings. This might be achieved by phasing
out own warehousing of office supplies and negotiating sufficient delivery
terms with suppliers instead.
Baseline:
Costs for inventory surplus including:
Financing cost
Warehousing cost
Real estate
HR cost
Order processing cost
Helpdesk cost
Invoicing cost
Pick and pack
Parcel packing (HR costs)

Delivery charges
(Historic book value of company owned inventory current book value of

reduced inventory) x (cost of capital or total carrying costs)
6.4.3 Packaging


Scenario SR1: Product cost (Last price paid negotiated contract price) x
reduction volume
Scenario SR3: New product Three or more commercially and technically


extras
Scenario VR1: Demand man- (Last volume negotiated new volume) x nego-
agement tiated contract price
Packaging Category savings calculation has to be done by defining baskets

which reflect the spend profile for all products according to DEUTSCHE POST
DHL demand:
Plastics Family contains the following baskets:
Flyers
Sorting Sacks
Packaging list envelopes
Paperboard Family contains the following baskets:
Express envelopes
Other Family contains the following baskets:
Boxes
Tapes
Seals
Pallets
To ensure comparability it has to be ensured that the following components
are taken into consideration to achieve a unit price
Size
Material
Delivery
In this category it should nearly always be possible to refer to "historic" base-
lines since all the various items should have been bought before. Even the
specification is not changing significantly.
Baseline:
Since the calculation refers to baskets instead of unit prices the baseline will
be a weighted average baseline reflecting DEUTSCHE POST DHL spend pro-
files as well as historic prices.

The baseline should always refer to historic price and historic spend. Only in
the very rare cases (e.g. re-branding requires new specification) it has to be
investigated if the historic prices can be derived from components of previously
purchased items where an historic price exists. If this is not possible, one can
refer to the best three offers of the initial responses to the RFP (or if there were
less offers one has to refer to the best initial offer).
(Old unit price new unit price) x volume
Case of a new product buy (e.g. introduction of a new size of boxes or enve-
lopes)
Baseline:
The initial RFP responses/price offers from all suppliers within a packaging
category will be used as the baseline price. The baseline price will be calcu-
lated as average of the best three commercially and technically approved of-
fers (Prices of offers divided by the number of all valid offers).
Negotiated contract with supplier includes rebates on volume or incentives.

Rebate/incentive has not been included in previous buys. Ideally, this rebate
will be negotiated and included in the purchase price.
Baseline:
6.4.4 Operational Prints


Scenario SR1: Product cost (Last price paid negotiated contract price) x
reduction volume

Scenario SR2: New Product Three or more commercially and technically

extras
Scenario VR1: Demand man- Volume replaced by new means of publication x
agement cost per item cost for new means of publish-
ment.
(Previous # of orders new # of orders) x cost
per order
Operations Print includes the following subcategories:
Business Cards
Letterheads
Airway Bills (AWB)
Envelopes
Account books
Bar Coded Forms
Office Labels
Business Forms
Decals
Stamps
Prepaid Supplies
Diaries/calendars
Prepaid Supplies
Not home cards
Subcategory specific items are specified by:
Dimension
Paper type

Grammage
Printing color
Savings are tracked specific to the following dimensions:
country
division
subcategory
In the envelopes subcategory tracking has to be item specific for the different
types of envelopes.
In other subcategories it is useful to define baskets which reflect the spend

profile in each country/division combination.
Savings will most likely be generated by price reduction.
Baseline:
line). In most cases there shall be historic prices available.
In some cases there might be changes in specification requirements (e.g.

printing color) which have an impact on pricing. Baseline has to be composed
by using the historic price of the previous specification and adjusting/adding
the specification related price component.
In case of substantial increase/decrease of market price due to volatile pa-

per/pulp raw material price index baseline can be adjusted according to
percentage of raw material price change and

proportion of raw material in product (degree of dependency)
Scenario SR2: New Product buy
This scenario applies in the very rare cases where a product is sourced which
has never been bought before.
Baseline:
The initial RFP price offers from all suppliers. If there are three or more com-
mercially and technically approved supplier offers the average offer price of the
three best offers will be used; if there are less than three commercially and
technically approved supplier offers the best RFP offer will be used as base-
line.


Free of charge pick pack can be considered if
this was not granted in the previous contract and

this has not be apportioned to unit prices in the "price reduction" scenario.
Baseline:
Value of free of charge extra in based previous pick & pack charges
Volume x value of free of charge extra per item
Procurement can influence demand in operations print by:
Push ahead new means of publication (e.g. intranet)

Enhance awareness of costs
Baseline:
Volume of traditional publishments
# of ordered AWB/forms/etc. (based on same volume of business transactions)
Volume replaced by new means of publication x cost per item cost for new
means of publishment.
(Previous # of orders new # of orders) x cost per order

duced leading to significant cost savings.
Baseline:

Costs for inventory surplus.

reduced inventory) x (cost of capital or total carrying costs)
6.5 Production Systems
6.5.1 Scanners, Label Printers and Measurement Systems


duction volume
Scenario SR2: New product buy Three or more commercially and techni-
cally approved supplier offers: Average of-
contract price
Scenario SR4: Volume rebate Volume x rebate/incentive per purchased unit

/incentive collection
Scenario VR1: Demand man- (# previous surplus orders - # new surplus or-
agement ders) x cost per unit charge for service im-
provement
Scenario PR1: Process im- # couriers x minutes/day saved x days x HR
provement costs per min.
Sourcing in the Scanners & Printers category will gain substantial savings by
reducing product cost.
Baseline:
Baseline has to be calculated by using historic pricing. Unit prices contain the
following elements:
Product price (hardware)

Warranty
Service
These components have to be comparable (e.g. standard service catalogue).
Historic prices are used for baseline calculation if there is a comparable previ-
ously purchased product.
Mere product related improvements which are typical in the market do not jus-
tify adjustments of the baseline. If product specification is significantly different
(business requirements have changed significantly, e.g. introduction of wire-
less LAN technology) it is not possible to refer to a historic baseline.
The new baseline has to be composed by:
using historic prices of previous product and

adding the price component for the "new specification"
or
composing baseline by combining price components of previously bought
products
Scenario SR2: New Product buy
This scenario applies only in very rare cases where a product is sourced that
has never been bought before.
Baseline:
The initial RFP price offers from all suppliers. If there are three or more com-
mercially and technically approved supplier offers the average offer price of the
three best offers will be used; if there are less than three commercially and
technically approved supplier offers the best RFP offer will be used as base-
line.


incentives. Rebate/incentive granted in new contract has not been included in
previous buys.
Baseline:
This might be a scenario to be further investigated in the future.
Baseline:
ment, overhead, maintenance) respectively actual cost of leasing.
(Cost of purchasing - leasing price) x volume

Procurement can influence demand by adjusting service requirements (lead

times) which reduce the necessity to store products (to bridge former lead-
times).
Baseline:
# of previous surplus orders and charge for previous service level
(# of previous surplus orders - # new surplus orders) x cost per unit charge
for service improvement
New technologies (e.g. wireless LAN) have an impact on the efficiency of the
courier delivery process and thus lead to cost savings.
Baseline:
HR-costs for delivery-process before improvement.
# couriers x minutes/day saved x days x HR costs per min.

In addition to savings achieved by just reducing volume (see scenario VR1)

there might be additional savings due to reduction of stock.
Baseline:
Costs for inventory surplus (not already included in VR1).

reduced inventory) x (cost of capital or total carrying costs).
6.5.2 Security


duction volume

Scenario PR1: Process im- (Previous cost of processed item new cost of
provement processed item) x processed items
Scenario AR1 Manual transac- (Historic average FTE hours per order FTE
tion reduction hours per order via platform) x # of orders
Savings tracking has to be country and division specific. Security savings are
allocated to the following product types:
Security System Clusters Products

Closed Circuit TV (CCTV)
Intruder detection alert system
Security Equipment
Access control
Integrative systems
X-Ray systems
Screening and Detection Explosive tray detection
Metal detection
Products sometimes will be defined by baskets of various approved specifica-

ally.
Baseline:
Use historic price for product (item or basket). Baseline is calculated as TCO
comprising:
Hardware
Installation cost
Service/Maintenance
Training
negotiated contract price) x volume1
Using a new baseline:

incentives. Rebate/incentive granted in new contracts has not been included in
previous buys.
If there was a rebate included in previous buys the rebate has to be integrated
into the unit prices.
Baseline:
(potential future scenario)
Purchase of security products might lead to cost improvements in business

processes in terms of used human resources.
Baseline:
HR-costs for process before improvement. Baseline is defined by calculating
cost per processed item (comprising # of FTE and training costs).
(Previous cost of processed item new cost of processed item) x processed

items
Ordering security solutions via e-ordering platforms out of negotiated stan-

dards will reduce HR costs by avoiding single sourcing activities in each sta-
tion.
Baseline:
Historic cost for each order:
Specification
Negotiation
Order placement
(Historic average FTE hours per order FTE hours per order via platform) x #
of orders
6.5.3 Logistics and Warehouse Systems


duction volume
Scenario SR2: New products Three or more commercially and techni-
buy cally approved supplier offers: Average of-
contract price


Scenario SR 7: Inflation (price (Factor for avoided price increase) x volume
freeze)
Scenario AR1 Manual transac- (Historic # of purchasing processes new # of
tion reduction purchasing processes) x HR cost for each pur-
chasing process
Scenario IR 2: Sale of sur- (Standard lease term in months return term
plus/obsolete material in months) x Volume x monthly lease rate
The Logistics and Warehouse systems category comprises the following sub-
categories:
Forklifts/Pallet Trucks
Ground service equipment
Cages & Containers
Letterboxes
Logistics Systems
Operational Furniture
Warehouse Solutions & Systems
In each subcategory there are different specifications of products. Thus, sav-

ings will be tracked by defining baskets reflecting spend profiles for each coun-
try/division or their respective combination.
Prices need to be composed out of unit price and full service price according to
standard service definitions. Prices are negotiated either as purchase prices or
lease rates. Nevertheless the lease vs. buy scenario is still incorporated for
this category in order to be able to decide whether buying or leasing is the bet-
ter option for DEUTSCHE POST DHL.
Baseline:
Purchase: product price including full service for each specification
Lease: previous monthly lease rate
Usually historic prices are available for each product/specification. Pure stan-
dard product improvements by suppliers which are typical for the market do
not justify adjustments of the baseline.
Only where business requirements have changed and new product specifica-
tions are in place, baseline prices need to be composed by using historic
prices of product components that have been bought previously. If there are no
components available, the baseline needs to be derived from the initial RFP

responses (for calculation see new products buy scenario).
Purchase:
(Last price paid negotiated contract price) x volume
Lease:
(Last lease rate negotiated lease rate) x volume x months
Using a comparable baseline: (Last lease rates for comparable components
negotiated lease rates) x volume x months
Purchase of logistics systems is primarily project driven. If it is targeted to pur-

chase a customized logistics solution, the baseline should be derived by com-
posing baseline prices out of previously purchased components. If there are no
components available, the baseline needs to be derived from the initial RFP
responses.
Baseline:
The initial RFP responses are used as the baseline price. The baseline price
will be calculated as average of all commercially and technically approved of-
fers (prices of offers divided by the number of all valid offers). There need to
be at least three valid offers. In case of fewer offers, price baseline will be the
last negotiated offer with the lowest price.
Purchase:
Lease:
age offer lease rate of the best three offers negotiated lease rate) x volume x
months
lease rate offer negotiated contract lease rate) x volume x months


previous buys.
Baseline:
For some categories, where products are purchased, lease of products might
be a viable option (or vice versa). If active involvement of Procurement (e.g.
through negotiation of prices) leads to a decision, that products will be leased
(or purchased) in the future, the difference between both options (lease vs.
buy) can be calculated as savings.
Baseline:
Actual cost of purchasing (including product price, buy back conditions, proc-
ess costs e.g. invoicing, service charges, cost for management, overhead) re-
spectively actual cost of leasing (lease rates and service charges) need to be
considered. These costs have to be broken down into monthly rates (lease:
contract duration; purchase: life cycle).
(Cost of purchasing leasing price) x volume

Since product prices are highly depending on raw material price fluctuation it is
allowed to claim savings by avoiding market price increases for the following
subcategories:
Ground service equipment (depending on aluminum raw material prices)

Cages/Containers (depending on steel raw material prices)
Baseline:
Factor for avoided price increase

Factor for avoided price increase x percentage of raw material cost of total
product cost x Volume
Ordering security solutions via e-ordering platforms out of negotiated stan-

dards will reduce HR costs by avoiding single sourcing activities in each sta-
tion.
Baseline:
Historic (HR) cost for each purchasing process
Specification
Supplier market evaluation
RFQ
Negotiation
Order placement
Actual # of purchasing processes
(Historic # of purchasing processes new # of purchasing processes) x HR

cost for each purchasing process

Agreements with suppliers to return lease products before expiry of lease con-
tract might lead to additional saving.
Baseline:
Standard contracted lease term
Monthly lease rate
(Standard lease term in months return term in months) x volume x monthly

lease rate
6.5.4 Sorting and Conveying Systems


Scenario SR2: New products Using a new baseline:
buy Three or more commercially and techni-
contract price
Due to the character of the business, Procurement is basically project driven.

Procurement is looking for final and integrated solutions which fit technical re-
quirements. Prices are not negotiated on item level.
Baseline:
Baseline calculations have to be consistent with TCO principles.

Using a new baseline:

Three or more commercially and technically approved supplier offers: Average
offer price of best three offers negotiated contract price
Less than three commercially and technically approved supplier offers: Best
offer price negotiated contract price
Disposal of obsolete equipment can be sourced separately. Thus this is usu-

ally not a source to gain additional savings out of previously bought and obso-
lete equipment.
6.6 Site Services
6.6.1 Temporary Labor


Scenario SR1: Product cost reduc- See three different cases as described
tion below
Scenario SR2: New products buy Three or more commercially and techni-
cally approved supplier offers: (Average
offer price of three best offers negoti-
ated contract price) x volume
Less than three commercially and tech-
nically approved supplier offers (Best
RFP offer price negotiated contract
price) x volume
Scenario SR3: Free of charge extras Volume x value of free of charge extra
Scenario SR4: Volume reba- Volume x rebate/incentive per pur-

te/incentive collection chased unit
Scenario SR6: Make vs. buy [Cost of own manufacturing (i.e. labor
cost + material cost + overhead cost) -
Scenario SR8: Inflation (price freeze) Factor for avoided inflation x volume
Scenario VR1: Demand manage- See two different cases described below
ment

Scenario PR1: Reduced of personnel (Number of hours for running the old
costs process number of hours for running
the adapted process) x hourly rate.
Scenario AR2: Payment & delivery (Old costs per transaction new costs
terms per transaction) x No. of transactions
Scenario CR2: Dispute resolution Dispute amount/liability negotiated

settlement amount.
Scenario CR3: Accelerated sourcing Savings amount with process improve-
process ment amount of savings without proc-
ess improvement

Three cases need to be differentiated:
A) The price per hour is calculated by the product of an hourly wage rate
and a multiplier.
B) The price per hour is calculated by the product of an hourly wage rate
and a fixed hourly markup (currently only applied in UK).
C) The price per hour is calculated by an hourly rate linked to collective

labor agreements (currently only applied in Germany).
Case A:
The multiplier represents the suppliers cost elements (statutory and otherwise)
as well as their profit margin. It is another way of expressing the total charge
rate but can easily be translated into a traditional agency margin.
The multiplier gives DEUTSCHE POST DHL visibility to the profit applied by
suppliers and ensures that bids from staffing agencies are being compared on
a "like for like" basis.
The multiplier has to be X (number of non billable days)

calculated as follows:
Public holidays
Vacation days
Sickness days
261 1 Y Z
Multiplier, M
Training days
(261 X)
Z (markup)
General facilities and

administration
Payrolling
Recruitment
Profit margin
Y (direct cost of employment)
Employers tax
Insurance
Pension
Training costs
Bonus

Baseline:
Variable historic baseline: Previous multiplier (e. g.1,98)
As far as data is available (e.g. in case of reporting of call-offs out of frame

agreements): (Old average hourly rate per skill level x old multiplier new av-
erage hourly rate per skill level x new multiplier) x volume
Otherwise: (Old multiplier new multiplier) x volume
Case B:
The price per hour is calculated by the product of an hourly wage rate and a
fixed hourly markup (currently only applied in UK).
Baseline:
Historic baseline: Last contracted fixed hourly markup
(Last contracted fixed hourly markup new contracted fixed hourly markup) x
volume.
Case C:
The price per hour is calculated by an hourly rate linked to collective labor
agreements (currently only applied in Germany).
Baseline:
Variable historic baseline: Last contracted hourly rate x (100 + % of hourly
wage rate increase caused by collective labor agreement / 100)
[Last contracted hourly wage rate x (100 + % increase of hourly wage rate
caused by collective labor agreement) / 100 new contracted hourly/daily rate]
x volume
Examples for a new product buy in the subcategories:
Temporary Labor
A new product is a special skill which will be purchased for the first time.

Baseline:
baseline price will be calculated as average of the best three commercially and
need to be at least three valid offers. In case of fewer offers, baseline price will
be the price of the best RFP offer.


RFP offer price negotiated contract price) x volume
Negotiated contract with supplier includes free of charge extras (e.g. services)
which are not included in the price, and have not been part of the prod-
uct/service offering of past purchases. The free charge of extra needs to have
been specified before negotiations.
Example:
Special reporting, drug testing (e.g. US), outsourcing of administrative proc-
esses to suppliers (e.g. in On-Site Management solutions), etc.
Baseline:
New Baseline: Value of free of charge extra in based on competitive quote of
fair market value.

previous buys.
Example:
Rebates on volumes in consulting contract, etc.
Baseline:

tion. In countries with high inflation rates (> 10%), Procurement can negotiate
price freezes (i.e. prices will be fixed for a certain period of time).
Example:
The category manager of Temporary Labor is able to identify an adequate
supplier for temp workers in Brazil, who offers 15% cost reductions compared
to the current prices paid. Due to the high inflation rate in Brazil (average infla-
tion rate of 7.3%) the category manager negotiates a fixed price for the next
e.g. three years.
Baseline:
Factor for avoided inflation = (average inflation rate for time period)
Within temp labor two cases of demand management are possible:
Case 1: Reduction of overtime hours
Case 2: Optimization of deployed skill profiles
Case 1: Reduction of purchased temp labor force costs due to an improved

demand forecast so that overtime hours can be reduced.
Case 2: Procurement is able to shift demand from a more expensive skill pro-
file to a less expensive one.
Example:
Case 1: The demand of temporary worker hours (e.g. overtime hours) has
been reduced due to a better forecast (e.g. due to a forecast planning sys-
tem/tool provided by Procurement). This helps the supplier to better plan
and/or manage the temporary workers and thus results in a reduction of over
time hours.
Case 2: Procurement is proactively managing that only warehouse clerks are

purchased for a warehouse clerk working place instead of forklift operations
9
which are purchased for a higher hourly rate for the same working place.
Baseline:
Case 1: Total overtime hours previous period compared to total temp labour
hours previous period (% of overtime hours previous period)
Case 2: No. of hours per skill profile in previous period
Case 1: (% of overtime hours previous period - % of overtime hours current

period) x total temp labor hours current period x (price difference between
overtime hour regular hour)
Case 2: No. of hours shifted from more expensive skill profile to less expensive
skill profile x price difference of the two skill profiles between the volume
shifted
Scenario PR1: Reduced personnel costs
Reductions in personnel cost for running a process
Examples:
1. Reduction of FTE needed for time reporting of temporary workers by in-

troduction of an electronic time keeping system. This system will be put
in place by Procurement.
2. Reduction of FTE needed for administrative data transfer (e.g. time

sheets for temp workers, catalog buying etc.) by introduction of an e-
interface from own e- system to e-system of the supplier.
3. Higher productivity of temp worker by introducing an incentive program

(e.g. in price-per-unit models) initiated by Procurement.
4. The category manager reduced the fluctuation rate for temporary work-
ers because of better forecasting and/or demand planning.
Baseline:
The Baseline consists of the historic cost (hourly rate for FTE x hours) for run-
ning the old process.
(Number of hours for running the old process number of hours for running
the adapted process) x hourly rate.

This scenario will be supported by introduction of e-requisition tools (VMS =

Vendor Management Solutions). These tools will not only ensure compliance
but also simplify requisition processes.
Baseline: Old costs per transaction
(Old costs per transaction new costs per transaction) x No. of transactions
Example:
The category manager for Temporary Labor is able to negotiate with an in-
cumbent supplier new contracts containing new payment terms: DEUTSCHE
POST DHL will now have to pay the invoices after 90 days instead of 60 days
generating an improved financial situation.
Baseline:

Example:

tiation efforts. Shifting liability to suppliers if e.g. a temp labor forklift operator
damages goods which will be charged to the supplier.
Baseline:

Example:
The cycle time of the sourcing process for site services can be reduced from 7
to 4 month. Thus DEUTSCHE POST DHL gets the better prices for 8 instead
of 5 months.
Baseline:

ess improvement
6.6.2 Facility Management; Utilities


duction volume
For Category Utilities refer to detailed formula

described below (hedging electrical power)
Scenario SR2: New product buy Three or more commercially and techni-
contract price
Scenario SR4: Volume rebate Volume x rebate/incentive per purchased unit

/incentive collection

Scenario SR6: Make vs. buy [Cost of own manufacturing (i.e. labor cost +
material cost + overhead cost) - purchase
price ] x volume
Scenario VR1: Demand man- (# previous surplus orders - # new surplus or-
agement ders) x cost per unit charge for service im-
provement
Scenario PR1: Process im- # couriers x minutes/day saved x days x HR
provement costs per min.
Prices are reduced by renegotiating the charged hourly/daily rate.
Baseline:
Historic hourly/daily rates paid at frame contract price level last year have to be
used as a baseline.
All contracts which do not refer to frame contracts but are purchased as a pro-
ject initiative and where neither a historic baseline nor a comparable baseline
exists the baseline has to be calculated as the average of the best three com-
mercially and technically approved offers. If there are less than three offers it
has to be referred to the best commercially and technically approved offer.
(PBASELINE - PNEW) * Q
PBASELINE = previous hourly or daily pay rate
PNEW = new hourly or daily pay rate
Q = volume (hours or days invoiced)
Scenario SR1: Product cost reduction HEDGING ELECTRICAL POWER
This scenario describes the hedging of electrical power (base-load and peak-
load volumes excluding any other price related components i.e. supplier mark-
ups or other fees).
DEUTSCHE POST DHL hedges electricity up to 12 times a year at European

Energy Exchange EEx in Leipzig. Volumes for the next year and the year after
can be hedged. Savings can be claimed, when Procurement was able to
hedge to a better price than the one-month-average of the current month.

Note: As the average price is only calculable in the subsequent month, the
savings reporting in PBTS can only be done in the following month for all Elec-
tricity that has been purchased the previous month. Calculation of savings
(e.g. baseline) and reporting process have been aligned between CCM, Busi-
ness Partner and Controlling Procurement end of 2008.
Baseline:
Baseline price: Average price for electricity in the respective month (available
in the following month)
Baseline volume: Total amount of electricity (futures) that is purchased in the

respective month, regardless, for which point in or range of time in the future.
Average price in the respective month x volume ordered in the respective

month actual purchasing price x volume ordered
Example for a new product buy in the sub-categories:
Integrated Facility Management Services (IFM)
A new product can be a special service (e.g. IFM) which hasnt been pur-
chased in the past.
Baseline:


Negotiated contract with supplier includes free of charge extras (e.g. services)
which are not included in the price, and have not been part of the prod-
uct/service offering of past purchases. The free charge of extra needs to have

been specified before negotiations.
Example:
Special reporting, data management, outsourcing of administrative processes
to suppliers (e.g. in On-Site Management solutions), etc.
Baseline:
New Baseline: Value of free of charge extra in based on competitive quote of
fair market value.

previous buys.
Example:
Rebates on volumes if a supplier performs his Cleaning, Security etc. Services
in more than one lot.
Baseline:
For some sub-categories (e.g. Security Services in Germany) prod-

ucts/services are done in-house and outsourcing might be a viable option. If
active involvement of Procurement (e.g. through negotiation of prices) leads to
the decision to purchase these products / services in the future, the difference
between the options make and buy can be calculated as savings.
Example:
DEUTSCHE POST DHL internal staff executes Security Services on site (re-
ceptionist, guarding and protection etc). The category manager of FM sets up
a sourcing initiative in order to benchmark the costs of internal services with
costs of external service providers. The price comparison shows that
DEUTSCHE POST DHL can save 18% of the costs in Security Services, if a
Security Services Company would take over these activities from DEUTSCHE
POST DHL. Initiated and driven from Procurement FM, DEUTSCHE POST
DHL therefore decides to outsource the function to an external service pro-
vider.
Baseline:
Actual cost of current in-house service (i.e. labor cost + material cost + over-
head cost)
[Cost of in-house service - purchase price ] x volume
Example:
The category manager of FM is able to identify an adequate supplier for Clean-
ing Services in Brazil, who offers 15% cost reductions compared to the current
prices paid. Due to the high inflation rate in Brazil (average inflation rate of
7.3%) the category manager negotiates a fixed price for the next e.g. three
years.
Baseline:

demand.
Example:
Reduction of kWh
Procurement is able to influence the use of energy (reduce consumption in

sites) e.g. by using more efficient lighting. The difference in consumption can
be claimed as savings.
Baseline:
10
Example:
Procurement introduces a tool, optimizing e.g. the order process for services
provided and thus optimizes costs on business side.
Baseline:

ess improvement

6.7 Services
6.7.1 Consulting and Prof. Services


duction volume
Scenario SR2 Free of charge Volume x value of free of charge extra
extras
Scenario SR6: Make vs. buy [Cost of own manufacturing (i.e. labor cost +
price ] x volume
Scenario VR1: Demand man- No. of hours/days shifted from more expensive
agement skill profile/consultancy to less expensive skill
profile/consultancy x price difference between
the two skill profiles/two consultancies be-
tween the volume shifted
Savings are calculated separately for each skill profile that is defined centrally
by the Category Manager (e.g. Senior Consultant, Partner)
Prices are reduced by renegotiating the charged hourly/daily rate for each skill
set.
Baseline:
Historic hourly/daily rates paid at frame contract price level last year have to be
used as a baseline.
All consulting contracts which do not refer to frame contracts but are pur-
chased as a project initiative and where neither a historic baseline nor a com-
parable baseline exists the baseline has to be calculated as the average of the
best three commercially and technically approved offers. If there are less than
three offers it has to be referred to the best commercially and technically ap-
proved offer.

Free of charge extras might be e. g. travel expenses or free additional consult-

ing days which will nor be charged or be provided for free by the consultants.
Baseline:
value.
Examples for a new product buy in the subcategories:
Training
A new product buy is the sourcing of a training course which hasnt been pur-
chased in the past.
Recruiting
A new product can be a special service (e.g. HR-consulting) which hasnt been
purchased in the past.
Additional HR Services
A new product can be a special service (e.g. an special labor insurance) which
hasnt been purchased in the past.
Baseline:



Baseline:
Consulting demand is steered towards less expensive skill profiles and/or to a

less expensive consultancy. By providing transparency on demand of entities it
can be benchmarked that some entities might have too sophisticated require-
ments.
Baseline:
Cost for the previous used skill profiles/consultancies
(No. of hours/days shifted from more expensive skill profile/consultancy to less

expensive skill profile/consultancy) x (Price difference between the two skill
profiles/two consultancies between the volume shifted)
As far as the required consulting days of a project can be reduced by active in-
fluence of Procurement resulting savings can be reported accordingly.
Baseline:
Cost for the originally planned demand of the business partner
Cost for original number of days cost for reduced number of days.
For some sub categories (e.g. Trainings, recruiting) products/services are self-
manufactured and purchase of finished products/services (or outsourcing)
might be a viable option. If active involvement of Procurement (e.g. through
negotiation of prices) leads to the decision to purchase these products / ser-
vices in the future, the difference between the options make vs. buy can be
calculated as savings.

Example:
DEUTSCHE POST DHL internal staff executes human resource functions (e.g.
recruiting, professional development, temp worker training and site introduc-
tion, administrative processes as order or invoice management, etc). The
category manager of HR Services could set up a sourcing initiative in order to
benchmark the costs of internal HR services with costs of external HR service
providers (e.g. personal consulting companies). The price comparison shows
that DEUTSCHE POST DHL can save 18% of the costs for recruiting, if the
personal consulting company would take over recruiting activities from
DEUTSCHE POST DHL. DP DHL therefore decides to outsource the recruiting
function to an external service provider.
Baseline:
cost)
6.7.2 Travel & Entertainment: Air travel


Scenario SR1: Product cost reduction (ATP baseline prior year x IATA
price factor ATP actual for current
year) x actual number of tickets in
current year
Scenario SR1: Product cost reduction (ticket price reduction)
Airline savings will be calculated for the entire flight travel costs. Calculation is
based on average ticket prices.
Baseline:
Ticket price reductions are measured against a variable historic baseline be-
cause ticket prices fluctuate with the non-influenceable price development
caused by IATA (International Air Transport Association).
(ATP baseline prior year x IATA price factor ATP actual for current year) x
actual number of tickets in current year
ATP baseline : Average ticket price in baseline year

ATP actual: Actual average ticket price in current year
IATA price factor: Percentage of cost increase/decrease caused by IATA
ATP is defined either as average ticket price per Intercontinental flight or aver-
age ticket price per Continental/Domestic flight.
Savings calculation will be done on level of Subdivision per Country. On this

level, negative Savings will be taken into account and offset against positive
savings (but lowest possible savings to be claimed on level of subdivision and
Country is zero per reporting period).
Reporting of Savings in PBTS:
Savings calculation for Full-year savings is always calculated based on ATP
per year (for the full year time period), i.e. total spend per year divided by total
amounts of tickets per year, each on Subdivision/country level.
Reported Savings in PBTS on level of Subdivision/Country for the full year
time-period should equal the full year impact based on ATP per year (as de-
scribed in calculation methodology above), but reported savings should always
be higher than zero.
Alignment of Airline Savings: As Airline Savings are not projected Savings due
to actual tracking (based on actual figures provided by the travel agencies),
they do not need to be aligned with the respective CFO of our Business Part-
ners, meaning a CFO Alignment for Airline Savings is not mandatory for claim-
ing of savings in PBTS, but still possible if requested by the Business Partner
(only exception in Alignment process due to actual tracking).
6.7.3 Travel & Entertainment: Hotels (accommodation only)


Scenario SR1: Product cost reduction (Average room rate of previous year
new negotiated average room rate) x
number of room nights of current year
Scenario SR2: New products buy Three or more comparable hotels at the
location available: (Average of three
best RFP prices negotiated price) x
volume
Less than three comparable hotels at
the location available: (Best RFP price
negotiated price) x volume

Scenario SR4: Volume rebate/ Volume x rebate/incentive per pur-
incentive collection chased unit.
Regarding usage of an index refer to Index for hotels
Savings need to be calculated on the basis of an average room night price per
city over all hotels purchased in that location. The development of the average
room rate mirrors not only the price reduction but also the effects of demand
management (e. g. shifting the demand from 5 star to 4 star hotels).
Baseline:
Average room night rate of previous year per city
(Average room night rate of previous year new negotiated average room
night rate) x number of room nights of current year
In case that DEUTSCHE POST DHL purchased a new hotel at a location

where so far no other comparable hotels have been purchased before a new
baseline for savings calculation needs to be applied.
Baseline:
If three or more comparable hotels at the location are available: The baseline
price will be calculated as average of the three best commercially approved of-
fers (sum of the best three prices of offers divided by three).
If less than three comparable hotels at the location are available: The baseline
price will be taken from the best commercially approved offer.
Three or more comparable hotels at the location available: (Average room rate
of three best offers negotiated room rate) x volume
Less than three comparable hotels at the location available: (Best average
room rate negotiated average room rate) x volume
Free of charge extras (e.g. free parking, free room nights), which are not in-
cluded in the last rate/price, and have not been part of the product/service of-
fering of precedent purchases need to be deducted from last rate or purchas-
ing price. These extras can only be claimed if the company (and not the travel-
ing employee) benefits.
Baseline:
value.

Baseline:
Value of rebate or incentive in EUR.
6.7.4 Travel & Entertainment: Hotels (meetings and incentives)


Scenario SR1: Product cost reduction (Average meeting flat fee of previous
year new negotiated average meeting
flat fee) x number of days of current year
Scenario SR2: New products buy Three or more comparable hotels at the
location available: (Average of three
best RFP prices negotiated price) x
volume
Less than three comparable hotels at
the location available: (Best RFP price
Scenario SR4: Volume rebate/ Volume x rebate/incentive per pur-
incentive collection chased unit.
Savings need to be calculated on the basis of an average meeting flat fee per
city over all hotels purchased in that location. The development of the meeting
flat fee mirrors not only the price reduction but also the effects of demand

management.
Baseline:
Average meeting flat fee of previous year.
(Average meeting flat fee of previous year new negotiated average meeting
flat fee) x number of days of current year
In case that DEUTSCHE POST DHL purchased a new hotel at a location

where so far no other hotels have been purchased before a new baseline for
savings calculation for meetings and incentives needs to be applied.
Baseline:
If three or more comparable hotels at the location are available: The baseline
price will be calculated as average of the three best commercially approved of-
fers (sum of the best three prices of offers divided by three).
If less than three comparable hotels at the location are available: The baseline
price will be taken from the best commercially approved offer.
Three or more comparable hotels at the location available: (Average of three

best RFP prices negotiated price) x volume
Less than three comparable hotels at the location available: (Best RFP price
Free of charge extras (e.g. beamer, which usually was charged with 100 EUR
per day is now provided for free), which are not included in the last rate/price,
and have not been part of the product/service offering of precedent purchases
need to be deducted from last rate or purchasing price. These extras can only
be claimed if the company (and not the traveling employee) benefits.
Baseline:
value.
Volume x value of free of charge extra.


Baseline:
6.7.5 Travel & Entertainment: Rail


Scenario SR1: Product cost reduction (Old ticket price new ticket price) x
number of tickets
Scenario SR4: Volume rebate (New discount old discount) x total
/incentive collection turnover with Rail company in EUR
Savings can be achieved by the rail ticket cost reduction per route.
Baseline:
Old ticket price per route
(Old ticket price new ticket price) x number of tickets

Alignment of Rail Savings: As they are not projected Savings due to actual
tracking (based on actual figures provided by the travel agencies) a CFO align-
ment is not mandatory.
Scenario SR4: Volume rebate
Rail company offers a special rebate (e.g. GRK, Grokundenrabatt from

Deutsche Bahn) depending on the total rail travel spend. An increase of the
discount can be claimed as a saving.
Baseline:

Old discount achieved for a certain volume
(New discount - old discount) x total turnover with rail company in EUR
6.7.6 Travel & Entertainment: Travel Agencies


Scenario AR2: Payment & delivery (Old transaction fee new transaction
terms fee) x volume
Transaction fee (so-called booking fee) is defined as the booking service fee
paid to a travel agency. Standard booking services include the bookings for an
entire business trip (with all related reservations, bookings and tickets).
Savings are generated from the reduction of the transaction fee.
Baseline:
Last transaction fee paid (historic baseline)
(Old transaction fee new transaction fee) x volume
6.7.7 Marketing & Media


Scenario SR1: Renegotiation (Last price paid Negotiated contract price)
x Volume
Scenario SR2: New products buy Three or more commercially and technically
approved supplier offers: (Average offer
price of three best offers negotiated con-
tract price) x volume
cally approved supplier offers: (Best offer

Scenario SR3: Free of charge ex- Volume x value of free of charge extra
tra (Remark: the free of charge extra needs to
be specified before negotiations)
Scenario SR4: Volume rebate Volume x rebate/incentive per purchased
/incentive collection unit
Scenario SR6: Make vs. Buy (Cost of own manufacturing (i.e. labor +
price) x volume
Scenario SR8: Inflation (price Factor for avoided inflation x volume
freeze)
Scenario VR1: Demand man- (Last volume negotiated new volume) x
agement negotiated contract price
Scenario AR2: Payment & deliv- (Old basis of payment and delivery terms
ery terms new payment and delivery terms) x annual
spend under new terms
Dispute amount/liability negotiated set-
Scenario CR2: Dispute resolution tlement amount
The most common scenario for prices for agency services is usually based on
hourly/daily rates of different skill profiles in an agency (i.e. account manager,
creative director etc.). Prices are reduced by renegotiating the charged
hourly/daily rate for each skill set.
Other pricing methods in the marketing area are also possible, for example
agency provision as a percentage of media spend, fixed monthly retainer, price
per page for a brochure, pay for results (i.e. return rate in a direct mailing) and
many more.
Baseline:
Historic hourly/daily rates paid have to be used as a baseline. If other pricing

methods are used, the respective historic price has to be utilized.
For all agency contracts or project initiatives where neither a historic baseline
nor a comparable baseline exists, the baseline has to be calculated as the av-
erage of the best three commercially and technically approved offers. If there
are less than three offers it has to be referred to the best commercially and
technically approved offer.

Special Case: Agency Pools with rate card templates
If there is an agreed rate card template per agency with many different price
items, a basket model can be developed to calculate savings. Related items
will be consolidated in a basket, i.e. hourly rates, prices for literature and bro-
chures, prices for direct mail, prices per ad. The negotiated savings for each
line item in a basket will be averaged into a percentage savings per basket.
The savings per basket can be calculated by forecasting the spend (or using
the spend of the call-off of the frame contract) by basket and agency and mul-
tiplying the amount with the negotiated savings percentage.
Example: The basket consists of five skill levels with different hourly rates and
different negotiated savings.
Skill A: Negotiated savings 5%
Skill B: Negotiated savings 2%
Skill C: Negotiated savings 7%
Skill D: Negotiated savings 3%
Skill E: Negotiated savings 10%
Average negotiated savings: 5.4 %
Forecasted spend for skill level basket: 100,000
Savings for basket: 5,400
If appropriate, a weighted approach can be used to calculated the average ne-

gotiated savings per basket.
Scenario SR2: New products buy (competitive bidding)
In the marketing & media category many projects do not have a comparable
historic baseline. The specifications for different advertising campaigns for ex-
ample usually differ from one initiative to the next and are not comparable.
Furthermore completely new products are bought for example in the area of
internet or mobile marketing.
Baseline:
be the price of the best RFP offer. Any price reductions received through fol-
low-on negotiations (including auctions) can be viewed as savings.
Three or more commercially and technically approved supplier offers: (Average

offer price of three best offers negotiated contract price) x volume
Negotiated agreement with supplier includes free of charge extras (e.g. free TV
spots, free advertising space, overtime not charged), which are not included in
the price, and have not been part of the product/service offering of precedent
purchases.
Baseline:
value.

tives (.i.e. yearly volume rebate for total revenue volume with a supplier). Re-
bate/incentive has not been included in previous buys.
Baseline:
Scenario SR6: Make vs. Buy
For some sub categories (e.g. production & distribution etc.) products/services
can be either done inhouse or purchased from an external supplier (i.e. out-
sourcing). If active involvement of Procurement (e.g. through negotiation of
prices) leads to the decision to either in-source or out-source the respective
services in the future and this is more cost-effective then the previous solution,

the difference between the options make vs. buy can be calculated as savings.
Baseline:
cost) or total cost of ownership for outsourced service
Example:
The category manager of Marketing & Media is able to identify an adequate
agency in Brazil, which offers 15% cost reductions compared to the current
prices paid. Due to the high inflation rate in Brazil (average inflation rate of
7.3%) the category manager negotiates a fixed price for the next e.g. three
years.
Baseline:
Volume of a defined product and/or service (product/service basket) have been

reduced through active negotiations by Procurement, i.e. active control of de-
mand. Or demand is steered by Procurement towards less expensive skill lev-
els from the agencies.
Example:
Agency offers in a project scope of work 20% time of managing director. Pro-
curement has benchmark data from comparable projects that show only 10%
time of that level. Procurement negotiates shift of 10% time from Managing Di-
rector to next lower (and less expensive) skill level.
Baseline:
11
Cost for the previous used skill profiles
(No. of hours/days shifted from more expensive skill profile to less expensive
skill profile) x (Price difference between the two skill profiles between the vol-
ume shifted)
As far as the required agency days of a project can be reduced by active influ-
ence of Procurement resulting savings can be reported accordingly.
Example:
Procurement is able to negotiate with an incumbent supplier new contracts
containing new payment terms: DEUTSCHE POST DHL will now have to pay
the invoices after 90 days instead of 60 days generating an improved financial
situation.
Baseline:

Example:

tiation efforts. Shifting liability to suppliers if e.g. a temp labor forklift operator
damages goods which will be charged to the supplier.
Baseline:

6.8 Transportation
6.8.1 Ground Transportation


duction volume
Scenario SR2: New Products Three or more commercially and technically
buy approved supplier offers: (Average offer price
of three best offers negotiated contract price)
x volume
approved supplier offers: (Best offer price
Scenario SR3: Volume Reba- Volume x rebate/incentive per purchased unit
Scenario SR6: Make vs. Buy (Cost of own Service delivery - purchase price)
x volume
The Ground Transportation category consists of the following sub-categories:
Road Transportation and Rail Transportation
Prices are reduced by renegotiating the charges for ground transportation ser-
vices on different routes or locations.
Baseline:
Baseline will be derived from historic prices for similar service classifications. A
service is characterized as a similar Service, if following applies:
Routing is similar to historical routing
Locations are similar
Similar means of transportation
Calculation of Savings:
Volume can be measured in Runs per day/week/month or as a weight meas-

ure (e.g. kilograms) according to contract.
Scenario SR2: New Products (Service) buy
This scenario applies where a service is sourced that has never been sourced
before (e.g. transportation services on new routing or for new locations)
Baseline:


Negotiated contract with transportation service supplier comprehends rebates

on volume or similar incentives. Rebate/incentive has not been included in
previous contract.
Baseline:
Volume x rebate/incentive per purchased Volume.

Transportation services can be either done inhouse or purchased from an ex-

ternal supplier (i.e. outsourcing). If active involvement of Procurement (e.g.
through negotiation of prices) leads to the decision to either in-source or out-
source the respective services in the future and this is more cost-effective than

the previous solution, the difference between the options make vs. buy can be
Baseline:
Actual cost of own transportation service (i.e. labor cost of driver + operating
costs e.g. fuel, leasing/depreciation truck + overhead cost etc.) or total cost of
ownership for outsourced service
[Cost of own transportation service per volume cost for outsourced service
per volume] x volume

6.8.2 Air Transportation


duction volume
x volume
x volume
Prices are reduced by renegotiating the charges for air transportation services
on different routes or locations.
Baseline:


before (e.g. transportation services on new routing)
Baseline:


previous contract.
Baseline:


Baseline:
Actual cost of own transportation service (i.e. labor cost + operating costs e.g.
air fuel, leasing/depreciation aircraft + overhead cost etc.) or total cost of own-
ership for outsourced service
Volume can be measured in Runs per day/week/month or as a weight measure (e.g.
kilograms) according to contract.
6.8.3 Sea Transportation


duction volume
x volume
x volume
Prices are reduced by renegotiating the charges for sea transportation ser-
vices on different routes.
Baseline:

before (e.g. transportation services on new routing or for new locations)
Baseline:


previous contract.
Baseline:


Baseline:
Actual cost of own transportation service (i.e. labor cost + operating costs +
overhead cost etc.) or total cost of ownership for outsourced service


7 Appendix
7.1 Glossary of terms
Baseline:
Pricing and projected volumes that the savings are calculated against. Every
baseline has to reference a year.
Estimated saving:
Savings that are based on a baseline price, a targeted new contract pricing
and forecasted volumes. Number for orientation purposes.
Contracted spend:
Projected spend based on new contract pricing. Contracted spend reflects pro-
jected demands.
Contracted saving:
Savings based on the difference between contracted pricing and baseline pric-
ing. Contracted usually reflect projected demands.
Contracted aligned saving:
Savings based on the difference between contracted pricing and baseline pric-
ing. Savings are aligned with the responsible business partners CFO
7.2 Frequently asked questions
Question 1: Why is the handbook so extensive?

The intention of the handbook is to give a complete picture of savings frame-
work, definition, and calculation.
The handbook provides easy access through category specific chapters.
User only need to read/apply category chapters they are working with.
User will find all necessary information on 4-6 pages.
User do not need to translate generic definitions and rules to their category.
Question 2: Does the handbook/PBTS only support central initiatives?

The handbook and the PBTS address all savings calculations for central,
regional and local initiatives.

Question 3: Who is responsible for savings reporting?
Procurement will use the PBTS to claim/report annualized contracted cash
savings. Therefore, Procurement is responsible for all reported savings figures.
Business partner is responsible for giving correct demand estimates.
Part of the PBTS concept is, that at first, users (= person who sets up a PBTS
record) are responsible for their own created records. However, category
manager will be able to view all records and related savings data within their
category.
Question 4: Does the handbook cover other aspects than savings report-
ing (e.g. quality)
Handbook is designed to support the necessary definition of savings across
the whole Procurement organization.
It is not intended to indicate that there are no further aspects that drive Pro-
curement activities.
Question 5: Are all savings scenarios relevant for all categories?

Applicability of savings scenarios depends heavily on the different categories.
Interviews with category managers have shown that scenarios were very
welcomed and reflect the business (even if some scenarios apply to a minor
number of categories only).
Question 6: Has the handbook been coordinated with all users in the
countries and regional Procurement?
The handbook and its savings definitions affect a comprehensive number of
stakeholders. Due to their high number it is not possible to seek a comprehen-
sive sign-off by all users.
Handbook content is driven by two key aspects: consistency and credibility.
Country feedback can only be considered unless it is not:
Contrary to what has been agreed with corporate and finance stakeholders to
ensure credibility
Contrary to what has been defined by Central Category Managers as reflecting
the business in their category
A contrary position among the countries to the various statements and defini-
tions (first feedback has shown that there are a few significant differences)
Question 7: Why does the handbook allow to use "comparable base-

lines"?
A historic baseline should always be first choice.
However sometimes a historic baseline does not exist (e.g. products/services
have not been purchased before)
Therefore a comparable baseline (based on target costing or initial RFP

quotes) needs to be established to determine Procurements performance
Question 8: How do we calculate if several savings scenarios do apply?

Each saving needs to be derived with the described calculation formulas.
Savings from several scenarios need to be added. Additionally increasing
costs by using a certain savings scenario have also to be taken into account
and be deducted from the overall savings sum.
Question 9: Do users need to read the entire savings handbook?

To get thorough understanding of how to track savings we recommend to read
chapter 1-5. Chapter 6 contains specific guidelines for all different categories.
Therefore the reader should only focus on the parts that deal with the catego-
ries she/he is responsible for/interested in.
7.3 List of abbreviations
CFO Chief Finance Officer

Crest Common Reporting System
DOE Direct Operational Expenses
DP DHL Deutsche Post DHL
EBIT Earnings Before Interest and Taxes
EDI Electronic Data Interchange
EFT Electronic Funds Transfer
FTE Full Time Equivalent
GPB Global Procurement Board
HR Human Resources
IFRS International Finance Reporting Standards
P&L Profit & Loss
PBTS Project and Benefit Tracking System
PN Procurement Note
RFI Request For Information
RFP Request For Proposal
TCO Total Cost of Ownership
ATP Average Ticket Price

7.4 Reporting Logic
When will savings be reported as actual annualized cash savings? The table below shows the dif-
ferent steps of savings reporting in detail. For further explanation (e.g. milestones) please refer to
PBTS System and Manual.
Initiative Benefit Record Report result
Report ends with last

Case Current ACS < or >= Which date must lay within report
Aligned (year or month) from Savings Category
# Milestone? 100.000? period?
the user report period
Current estimated end date N2 (if
1 Kick off, Da, Sa >= not possible Year potential saving
available), else Initial end date N2
2 Kick off, Da, Sa < not possible Year potential saving
3 Str >= not possible Year pipeline saving
4 Str < not possible Year pipeline saving
5 N1 >= not possible Year pipeline saving
6 N1 < not possible Year pipeline saving
7 N2 >= Not Aligned Year alignment in progress
8 N2 < Not Aligned Actual end date N1 Month actual annualized cash saving
9 N2 >= Aligned Date of alignment Month actual annualized cash saving
10 N2 < Aligned Date of alignment Month actual annualized cash saving
11 Impl >= Aligned Date of alignment Month actual annualized cash saving
12 Impl < Aligned Date of alignment Month actual annualized cash saving
13 Impl >= Not Aligned see report result see report result (not reported)
14 Impl < Not Aligned Actual end date N2 Month actual annualized cash saving

7.5 List of changes (compared to last version communicated, Version 1.06)
Differentiation of Savings and Value; pp. 10

Clear distinction between internal and external spend volume; Savings can only be generated on
internal Spend volume.
Savings scenario Subsidies added; pp. 24

New savings Scenario introduced: Subsidies for certain products ( e.g, for Training) granted by the
local authorities/governments can be included in the savings calculation as a price reduction, if
Procurement is identifying those subsidies and drives the application for funds.
New Alignment process for saving types Cost Avoidance and Procurement Benefit Savings; pp.39
The new alignment process applies only for saving types Cost Avoidance and Procurement Bene-
fit with a threshold greater than (or equal) 100k Annualised Cash Savings (ACS) per Benefit Re-
cord (BR). A CFO alignment for those benefit records is no longer mandatory (but admissible) and
is replaced by a final Controlling Approval done by Controlling Procurement (Dep. 793).
A CFO alignment for Travel & Entertainment savings is not mandatory; pp. 126
For clarity reasons has been added: As Travel Savings (i.e. Air Travel) are based on actual track-
ing provided by the travel agencies (no projected volumes), there is no CFO alignment mandatory
but still admissible.

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Deutsche Post DHL Procurement

2 Fundamental terms and definitions ................................................................................. 8

3 Savings reporting methodology ..................................................................................... 35

4 Savings Alignment Process ............................................................................................ 39

5 Special reporting and alignment cases ......................................................................... 46

6 Category specific savings guidelines ............................................................................ 53

7 Appendix ......................................................................................................................... 144

CONTROLLING PROCUREMENT Page 5

1.1 Role of Procurement

Procurement offers two services (products) sourcing and operational pur-

1.2 Objectives and motivation for savings measurement

Procurement and its cost structures contribute to DEUTSCHE POST DHLs

Providing transparency and consistency on all initiatives, responsibilities, Project and

CONTROLLING PROCUREMENT Page 6

1.3 Savings communication and alignment

A substantial element of a successful savings reporting is to share a common

Therefore Procurement savings, underlying volumes and conditions have to be

1.4 Roadmap to the savings handbook

The savings handbook consists of six main chapters:

Defines savings measurement process and key elements of the

3 Savings reporting methodology Defines calculation of annualized contracted cash savings

Defines savings reporting from frame agreements, kick-backs, lease

Definition of specific savings classes, scenarios and calculation for

To get a thorough understanding of how to calculate and report savings we

If you have any questions or amendments/change requests regarding the sav-

Michael Schfer, Controlling Procurement

CONTROLLING PROCUREMENT Page 7

2.1 Challenges and implications for savings measurement

Savings aiming at structural improvements need systematic measuring. Sev-

Savings are measured in a dynamic environment comprising various business-

CONTROLLING PROCUREMENT Page 8

Savings Estimated Contracted Contracted aligned

As illustrated above, savings measurement process is closely interrelated with

CONTROLLING PROCUREMENT Page 9

2.3.1 Overview savings concept

The savings measurement process can be specified by four steps, and is

Savings measurement process Overview

Key elements of procurement savings framework

Savings Savings Savings Calculation

2.3.2 Savings measurement process

We have to clearly distinguish between own DP DHL spend (Savings) and

Procurement Savings can only be generated for internal DP DHL cus-

CONTROLLING PROCUREMENT Page 1 0

The key elements of the savings framework need to be consistently applied

2.3.2.1 Baseline spend

CONTROLLING PROCUREMENT Page 1 1

If products and/or services (product/service basket) have been purchased

A Last (or date

C Prior year cost (spot price) for given

D Raw material component (percent of

E Raw material index change

Example for variable baseline:

Plastic envelope price per item (in 2006): 2

CONTROLLING PROCUREMENT Page 1 2

If products/services have not been purchased previously, and/or a historic

If neither a historic nor a comparable baseline can be established, a new

2.3.2.2 From estimated savings to contracted savings

Contracted savings are based on the difference between contracted pricing

2.3.2.3 From contracted savings to contracted aligned savings

CONTROLLING PROCUREMENT Page 1 3

2.3.3.1 Generic savings definition

Procurement savings are the financially