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A to Z of Purchasing Savings!

This is an A to Z list of savings tips for Purchasing and those working in related fields.

This A to Z is aimed at a tactical purchasing level, and there will also soon be an additional A to Z for more strategic levels of Procurement and Category Management.

If you are currently working with a purchasing team that is savings focused, this is a great list to keep everyone thinking about opportunities for savings...

Aggregation of orders - Aggregating similar order requests from all departments, sites, branches of your organization. This will increase your negotiation leverage when going to market, plus it will save on other costs such as freight and processing due to aggregation of requests.

Bulk Quantities - Where economical, the higher the order quantity the more leverage you have in negotiation. Why by a quantity of one, when you can buy three for a bigger saving.

Cost Avoidance - Avoiding a supplier's price increases through good negotiation or other tactics.

Discounts.  Can you get a discount off the supplier's list price?

End Users of the goods/services can assist greatly in ways to make savings. For example, they may be able to advise on the lowest acceptable quality or specifications to meet the needs and compliance, and this can mean reducing spend.

Feedback - Offer feedback to unsuccessful suppliers in a quotation process. This will allow the supplier to work on their weaker points and potentially offer a more competitive quote the next time round.

Good invoice price checking process by the purchasing officer to ensure savings achieved are being correctly invoiced by the supplier. This is especially important if the purchasing officer doesn't get the invoices (e.g. invoices go through internal accounts or stores). An example of an issue is where the purchase order price is being adjusted in the system to match the supplier's invoice.

Have a good understanding of supplier's costs.  This can reveal areas to make savings. Remember that 'Cost' is a real number, whereas 'Price' can be partially made up.

Information Accuracy and Completeness - Make sure you have the full details of a requirement before moving forward with a procurement. This will make it easier to gain quotes from multiple suppliers, and increase potential to make a saving.

Justify purchasing decisions with an evaluation process (quick or extensive evaluation depending on value/risk level), so you consider price and all other factors (e.g. freight cost, lead time, meets technical specs etc) and therefore make quality decisions. You don't want to make a decision for a less expensive item, when the freight cost will override those savings.  Total Cost!

Keep an eye out for ways to improve your purchasing processes.  A simple change in the way you operate can have a significant impact for a company.

Logistics - look for savings to be made in the freight and handling of your purchase orders.

Market Price - Has any drop in market price (e.g. steel) allow for a reduced price for goods or services.

Negotiate prices and supplier costs to achieve best possibly savings! And don't forget good internal negotiation with stakeholders and peers, otherwise your savings initiatives may never come to fruition.

Overcome objections from personnel who want to keep buying from their regular supplier despite paying a premium (Maverick Spending). Show them the potential savings so they understand the costs of their decisions.

Purchasing cards - low spend/low risk purchases, saving money on processing time such as raising purchase orders. Note that the exception to this is where the purchase is for catalogued materials, as they usually need to be tracked in an inventory system.

Quotes from at least 3 suppliers for medium to higher value purchases. Also referred to as a Spot Buy. It can also be worth getting Spot-Quotes from transport companies when paying for a larger freight movement of an order, even if you already have rates in place.

Reduce Specification: e.g. if you can get brand names removed from requests, this can open up the market for more suppliers to provide a quote.

Suppliers are the experts!  Ask the supplier for their advice on how savings can be achieved, they may offer up helpful ideas.  For instance they may appreciate a forecasted usage of an particular item, which will allow them to offer better pricing.

Terms of Payment:  e.g. by paying quicker (e.g. 15 day account instead of 30), will the supplier offer a discount?  Ensure that your company can meet these agreed payment terms.

Utilize existing contracts where possible to reduce leakage.

Vendor Relationship - working closely with your suppliers can realize benefits such as shorter lead times, priority access to stock, and other value adds etc

World-Wide Sourcing - Where appropriate, source quotes globally as well as locally.

EX stock items available on the supplier's shelf are a good target for getting a better price, as opposed to situations where the supplier has to order goods into the country.

WhY pay premium when a lower specification will do the same quality job?

Zero Purchase - Does it really need to be purchased? Identifying a need NOT to purchase is close to a 100% saving on the goods or services.

Thanks for reading and hopefully this can assist you and your purchasing team.

Be sure to check out more upcoming A to Z lists including a Procurement list, and Supply Chain list.

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The Heartache of Delivery Dates in Procurement!

In the world of procurement and supply chain, dates are thrown around all over the place. Due dates, delivery dates, ETD’s, ETA’s.

Let me ask you a question. What does a delivery date, on a Purchase Order for example, mean to you?

Is it?:

  • The date of dispatch from a supplier's warehouse?
  • The latest date the goods need to be delivered by, but can be sent earlier if it is available.
  • The exact date the goods are required to be physically delivered to a destination, and no earlier/later?
  • Don’t care, this is a boring topic?

Don’t get too bored, as this issue may be causing heartache for you and others in your company on a daily basis, such as deliveries arriving late causing planned work to be delayed, or deliveries arriving too early when there is no room to store the goods.

Is your interpretation of a delivery date the same as others? For instance, is it the same as your suppliers interpretation? Is it even the same interpretation as internal stakeholders in your company?

The word ‘delivered’ can mean different things to different people. For example, a supplier may consider goods 'delivered' when they dispatch the goods from their warehouse, whereas the buyer may consider them delivered when they have arrived at the specified delivery point. In this case, if a supplier dispatches the goods on the Delivery Date, it is going to arrive late!

Is it any wonder delivery issues continually arise? It is therefore important that delivery dates are understood and clarified throughout a supply chain, as they are the basis for the planning of work.

As a simple exercise, read and understand your company’s own Contract Terms and Conditions as they relate to delivery dates. For example, the terms may define the delivery date as when the goods must be physically at a specified delivery point. Make sure this understanding of delivery dates is clear for your suppliers and also internal stakeholders so there is no confusion or incorrect expectations.

As always, good communication with internal and external stakeholders is the key to reducing confusion, and in this case, confusion surrounding delivery dates.

Thanks for reading!

Expediting: My Job Doesn't Add Value! (Guest Article)

I have been an Expeditor (or is that spelled Expediter?) for the last 20 years. My roles have varied from small private companies to large mining companies.

If you don’t know what the job of Expediting is, you can read more here (What is Expediting?) Essentially, in the world of purchasing and supply chain, expediting means to ensure purchase order goods can meet expected delivery dates. Many smaller companies have expediting as an additional duty of a purchasing officer, whilst larger companies, such as mining giants, usually have dedicated expediting personnel to ensure the timely flow of goods for their projects. My role has predominately been in what is known as 'desk' expediting, which is exactly how it sounds, with lots of phone calls, emails, and running of reports.

I quite like my job as an Expediter (Expeditor?). Although challenging with strict deadlines, I enjoy the problem-solving element and frequent interactions with with a wide variety of internal and external stakeholders in the process (e.g. suppliers, logistics & 3rd Party Logistics providers, Accounts, Engineers etc).

BUT...Recently, while doing an internet search of the term ‘expediting’, I found many articles sprinkled with statements that the process ‘doesn’t really add value’ (e.g. Supply Chain Mechanic - Managing Your Procurement's Expediting Process), and is essentially a ‘NON-VALUE ADDING activity’ (e.g. WikiHow - Why is Expediting Considered a Non Value Adding Activity).

OUCH! I have likely taken this out of context, and I certainly shouldn’t take this too personally, but it does hurt a little bit to hear that your full-time job is not considered of any great value ☹ sniff.

NONETHELESS, It certainly did get me thinking about how much my role adds value to an organization.

Before putting forward MY point, I will concede that there are TWO instances in which the expediting process is a non-value adding activity. First is when the process is not performed properly, as in any job! Yes, there are dud expeditors out there, some who limit their job to ‘fighting fires’ as they arise. Second, I hear expediting tends to be classed as non-value adding activity in an ‘accounting’ context, which still hurts a bit regardless, it would be nice if they could class it as something else. ☺

On the positive side, this gives me a chance to put forward why I believe Expediting IS a VALUE adding activity. I believe it has a value adding effect that is not only felt across an organization but in the supply chain as a whole. This, to me, makes it an essential function for every organization (and I’ll never be out of a job, win-win!), and not an activity that should be classed as non-value adding.

I'll give you 7 Reasons why I believe (Good) Expediting is value adding:

1. $$$ It Frees up Resources: e.g. If goods ordered for a job arrive in a timely fashion, the job can be finished and that labor can be allocated to other jobs, instead of waiting around for a part to show up. Further, resources are also freed up by reducing the amount of emails and phone calls from internal (e.g. accounts) or external customers chasing invoices/receipts/goods.

2. $$$ It Improves the flow of the supply network: e.g. Expediting ensures stakeholders throughout the supply chain (e.g. suppliers, logistics, stores) are consistently ‘on the ball’ in regards to orders. Not only material flow improves, but information flow also, for example many suppliers proactively provide reports and updates on an organization’s outstanding orders. Flow of payments is also improved (e.g. through resolving of goods receipt issues) reducing the risk of account issues which may cause hold-ups in good delivery, and financial penalties (e.g. ageing invoices).

3. $$$ It Improves Forecasting/Planning: e.g. Good Expediting can drastically improve visibility and therefore assist inventory forecasting/demand planning, leading to much less requirement for holding extra inventory such as safety stock.

4. $$$ It Provides measures for supplier performance: e.g. it provides helpful delivery performance reporting that can be useful to other departments, such as contract managers wishing to bring up issues with the supplier at their next meeting.

5. $$$ It Reduces the need of expensive alternative sources: With consistent Expediting, there is less need to go grovelling to that OTHER supplier that gladly charges at a premium.

6. $$$ It Reduces the need for costly express freight: e.g. A good Expediting process means less chance of having to book express expedited air-freight in a gold-plated flying truck (not that I have ever done this).

7. $$$ It Exposes INTERNAL issues: e.g. A common perception of Expediting is "The suppliers are always late, tell them to hurry up". But it is definitely not always the suppliers' fault. In fact, MANY of the issues can lie internally. Expediting uncovers these internal issues e.g. the supplier has delivered the order but there are long delays in the stores to receipt the goods. Or even, the supplier never received the order in the first place due to an internal system fault. Or further, there is a communication issue where multiple departments are communicating with the supplier in regards to an order, causing confusion amongst everyone.

In a general sense, I believe that ANY role, that is performed to its optimum level, makes everyone else’s job easier, and that in itself is value adding.

I feel much better now! I have blurted some valid reasons of how my Expediting job adds value. Try it sometime with your own role.

One thing I can't tell you is if the correct spelling of my job title is Expediter or Expeditor, (google can't even tell me that). But I won't waste any time finding out answer, as, like checking Facebook regularly, that is a non-value adding activity.

- Guest Article from an Expeditor! on ProcurementCourse.com

Procurement A to Z !!!