Purchase price variance
The difference between what a part actually cost and its standard cost for the year, the number most procurement teams are measured on.
Also called: PPV, Price variance, Purchasing variance
Every year, finance sets a standard cost for each purchased part, usually last year’s price. Purchase price variance (PPV) is the gap between that standard and what was actually paid, multiplied by the volume.
If a part’s standard is €10.00, the buyer gets it for €9.70 and the plant uses 50,000 of them, PPV is €15,000 favourable. Summed over every part, it is the headline figure in most procurement reports.
What it misses
PPV measures price against last year’s price. It says nothing about whether last year’s price was right. A part that was €4 too expensive in 2023 and is still €3.80 too expensive in 2024 shows up as a €0.20 win.
It also rewards some bad decisions. Buying a cheaper but less reliable part, or ordering a year of stock to get a volume discount, both improve PPV and cost more overall. That is the argument for looking at total cost of ownership instead.
And it cannot see savings that happen before a price exists. A part redesigned at the drawing stage, or a reference removed during part rationalization, never had a standard cost to beat. The saving is real, but it does not appear in the PPV report, so it often does not get credited to anyone.