Many customers usually ask what the cost is for an item. And, their perception of that answer is usually based solely on the dollar amount listed on the suppliers invoice. In reality the actual cost of an item is much more than this. There are other, often overlooked, costs in all transactions.
- What is the cost to place the order with the supplier? According to Supply Chain Digest, the average company spends from $35.88 to $506.00 just to process a single purchase order. This cost can be reduced by taking advantage of online ordering for items ordered on a regular basis, and if set up correctly, items can be produced in a more efficient process. This results in a lower purchase cost, as well as reducing the transactional cost of processing a onetime purchase order.
- How much time is spent collecting quotes for an item prior to placing the order? The old adage of “Time is money” is truer today than ever. Companies expect their employees to do more with fewer resources. Purchasing departments are consolidating more items under their existing, already overburdened, buyers. How do you combat this? The solution is to get closer than ever to your value added suppliers. A value added supplier takes the time to understand your company’s goals and aligns their products and services to meet them.
- What is the cost to process a supplier invoice into the system and process the payment? Once again a value added supplier will have their invoicing processes flow into your company’s purchasing, receiving, and accounts payable system. In most companies the true cost to process, file and pay an invoice can be in excess of ten to twenty times the actual invoice cost. The fewer people required to process these transactions will yield savings in excess of the cost of some (or most) of the items purchased.
Minimizing your transactional costs will allow more time to be spent focusing on value added purchases. An increase of 10% value added purchases adds more to the corporate bottom line than a 20% reduction in purchase costs savings.