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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