The KPI Material Price Variance (MPV) for measurement of savings by substitutions
For the calculation and measurement of historical savings in procurement, the so-called Material Price Variance (MPV) is a current standard key figure. A valid and error-free price history, as well as quantity information, are required for its correct calculation.
The standard variant of MPV results in historical savings by calculating the difference between an earlier (“older”) average price of the last fiscal year and a current (“new”) average price for a certain material that is then being weighted according to its quantity...
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MPVstandard = (Ø Price old – Ø Price new) * (Quantity new)
In case of substitutions, standard MPV calculations result in wrong numbers
This standard formula can always be applied without occurring problems if the application quantity doesn’t change (scenario 1). If certain kinds of substitutions are being made, however, it can occur that application quantities vary or change. Scenario 2 demonstrates the substitution of an existing material by another one that is 30% more expensive (Price per Unit), though requires 50% less of an application quantity. Scenario 3 describes the opposite case...