Best Practices For Buying Goods & Services

May 30, 2009 by  Filed under: Management 

According to the BDC small medium sized businesses spend 45 to 65% of their revenue on purchasing materials and services.  This large percentage of the total costs of a business means that small savings, even 1% can mean instant addition to the bottom line but in today’s economy you can achieve even greater savings in the 10% to 20% range is possible.

Try some of the following to cut your spending:

1. Have your controller or hire a consultant do an expenses analysis

– Review all parts of the product or service cost, break them down individually into:

– Raw materials costs

– Taxes, brokerage, tariffs, duties

– Freight

– 3rd party warehousing/logistics handling costs

– Extra vendor charges

– Vendor payment terms

2. Review your purchasing process on how to evaluate the best choice

– What type of process is used for deciding to use one supplier over another?

– How many people need to be in the decision making process, the fewer the number of people, the less the overall internal cost?

– When deciding to purchase equipment is there a “Net Present Value” analysis of the different choices which examines the benefits over the asset’s life?

– Have your staff included used equipment purchases as an alternative to purchasing new? Have they visited auctions?

3. Potentially sources from offshore countries

– Start looking to buying from other countries to compare suppliers.  BDC studies show that only 42% of Canadian companies are saving money, but you could be one of them.

4. Review standardizing the number of parts in your product.

5. Reduce the number of suppliers %26 forge strategic partnerships with a few to get better pricing, terms, or delivery.

6. Think about using technology to help track your business

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