Part 1 – Buyers Guide to Cost Savings
As a Buyer or Purchasing Professional you should be evaluating your spend. What does this involve and how does it benefit my organization to complete a spend analysis? Basically, you are reviewing how your organization spends its operating budget or what makes up costs. To do this, one could run a historical report from your purchasing software system. It might allow you to drill down and report the top 20 or 30 vendors and how much money your company spent with them in the last 12 months. Better yet if it could provide the commodity or description of the spend then you are off to the races. If Purchasing cannot directly pull this data from a software program, your next best option is to approach the accounting department. They should be able to give you a list of the top vendors A/P sends payment to.
Once you have your list of the top 20% of your vendors in relation to how much money you spend with them annually we are fairly certain you are going to see that this list likely represents close to 80% of your operating budget. Yes the 80/20 rule will apply. Why focus on the top 20%, well there are only so many hours in the day and as a buyer you need to focus your efforts on where you are going to make the biggest impact. Spending hours on toilet paper contracts to save $10.00 might not be the best way of utilizing your time.
Cost conscious business owners will (more…)