Your Anchor Point for Measuring Success
The baseline is your anchor point. It is the documented, validated, and comprehensive picture of current costs, terms, and performance, against which all future improvements will be measured. Without a robust baseline, savings claims are fiction.
📋 What Your Baseline Must Include
- Total Spend: Annualized, all-in cost including all suppliers in the category. Reconcile accounts payable data with budget data.
- Unit Economics: Price per unit, per hour, per transaction - whichever metric is relevant. Normalize for volume and specification differences.
- Cost Breakdown: Raw materials, labor, logistics, margin, overheads. Request from incumbent suppliers or build from market data.
- Payment Terms Impact: With a WACC of 5%, 60-day vs. 30-day terms on €1M spend = €4,100 annual cost difference.
- Quality Costs: Rejection rates, rework, warranty claims, returns. Often the hidden 10-20% of TCO.
- Service Levels: Current OTD (On-Time Delivery), OTIF (On-Time In-Full), response time, defect rate.
- Contractual Terms: Duration, renewal terms, termination notice, liability caps, intellectual property.
✅ Baseline Golden Rule
Your baseline must be validated by finance and stakeholders before starting the RFx. Schedule a baseline review meeting and get written sign-off. If finance doesn't validate the starting point, they won't validate the savings at the end.