5 PROFIT-BOOSTING WAYS
TO PAY LESS
FOR WHAT YOU ALREADY BUY
the topic of the morning at a recent breakfast
gathering of “Trusted Advisors” settled
down to no- or low-cost ways to take pressure off the P&L.
More
specifically the focus became how to beat back buying costs.
What
was shared speaks to the best kind of results you can get in an idea-sharing
forum like this.
Too bad you weren’t
there to hear it.
(Just teasing.)
I
have notes.
And I will share. While every idea
won’t necessarily have direct application in all types of firms (there’s a
hard-goods, manufacturing bias to this crowd), without too much brain sweat
it’s likely these proven-in-action strategies can be implemented in some form
or other in operations of varying natures -- if to do nothing more, let’s say,
than better manage office supplies.
Added benefit: By and large they’re
“Everyone Wins” ideas. So, in effect, when implemented you’ll “pay” less for
what you buy, but that burden isn’t unfairly shouldered by anyone else.
So,
with no further ado, here’s the essence of my notes: Crack down on these five
cost bloaters that add needless dollars to your costs.
#1:
Be-ready-for-anything inventory. If you’ve ever been “burned” (or know someone
who has) by delayed shipments that brought production to a halt, your natural
reaction was to beef up your inventories of critical items to avoid being
caught short again. But inherent in this
is a natural tendency to overreact …figure
longer, overly inflated lead times …and wind up with half again as much
inventory as you really need at hand.
TGIM ACTION IDEA: Ask your suppliers to refigure lead times, and to
shorten them whenever possible. Don’t
wait for a supplier to make the suggestion—you make the request.
One
of the breakfast buddies cut inventory holding requirements by nearly 20% after
asking suppliers to refigure lead times. For years, her company figured four
weeks lead time into all its orders. Then because they were asked, their key supplier
refigured, and advised delivery could reliably be made in three weeks. And with
a little prodding with that stick, other suppliers agreed they could do the
same.
Result: Her company cut its next
round of orders to diminish its inflated inventory, then set the restock
inventory order to the lower-but-more-frequent figure without fearing production
snafus.
You
can also cut the dollars you have tied up in inventory with this effective –
Cash-saving move: Set a limit on the
quantities you buy at any one time.
Rule of thumb at the
breakfast table:
Don’t exceed a three or four months’ supply.
Calculate with a sharp pencil. Even when vendors offer bonuses for
bigger orders, remember that added financing/use of the money costs to cover
the larger purchases could easily cancel out any other benefit.
#2: Hidden costs in
vendors’ bills:
Many in the coffee klatch have turned the smallish effort it might take to
check vendor bills into big opportunities for savings.
Here
are three common “fat” areas:
•
Unusual charges. Check each vendor’s figures for non-routine
expenses like special tooling or extra shipping costs. It’s not uncommon for
needless charges – or even errors – to lurk here.
•
Reason for costs. Treat it like a Make-vs.-Buy analysis. Do your
best to find out from your vendors exactly why the product you buy costs the
amount you’re paying. Have the manufacturer detail the costs that govern the
price of high-value products. Pay
special attention to the amount quoted for overhead. The Trusted Advisors advise
that this is sometimes a catchall to mask excessive costs elsewhere.
•
Deliveries that don't match charges. Make sure you get what you will be expected
to pay for. If you are billed for 10,000 pounds of material, have the shipment
weighed to make sure it’s not light. If 10 gross has been ordered, 1440 pieces
should arrive. In case of a shortage (hey, it happens), check to see the
charges are suitably adjusted. If it happens too often, well …
#3: “Check the stock”-itis: You can often run up
labor and purchasing costs just keeping track of your stock on certain minor
items. But you can often get your supplier to help you control – or even
eliminate – much of this checking cost.
TGIM ACTION IDEA: Invite your
suppliers to do the work for you; check your stock on items they’ve sold you,
and tell you it’s time to reorder. Because they are as anxious as you are to
see there’s enough stock on hand, the supplier is your check valve against
running out of an item. (And, of course, check yourselves now and then so that
things don’t loop back to Scenario #1, above.)
#4: “I want this
yesterday” ordering:
Many at the table banged heads with this problem, especially those with centralized
purchasing or who require multiple higher-level signoffs to seal a deal. The
core problem: Production people don’t get their purchasing requests in early
enough to allow the operation to get both on-time delivery and favorable prices.
Costly result: Too often the buyer
has no alternative and must pay premium prices for Rush! delivery.
If
this happens in your operation, even once in a while, put a stop to it before
any of your people make late ordering their standard practice. Try this—
Clamp-down remedy: Give production what
they need to get it right: a deadline for reordering each item they use. See to
it that they let the purchasing powers know as soon as inventory reaches a
predetermined level. This will give your team time to shop around for the best
price and delivery.
#5: The “traditional”
supplier:
Just because a supplier offered the best deal some years ago, it’s no guarantee
that they’re not taking your business for granted, or that its price and
delivery terms are better than someone else can offer – especially in the
current economic climate.
TGIM ACTION IDEA: Shop around. You may
find some companies that were not competitive even a few months ago can handle
your job fast – or at a price much lower than you’re paying now.
On the other hand: If your research
reveals your present supplier is
offering the best price and delivery terms, of course, stick with them. But also
let them know you checked around and appreciate that. Just knowing you know
their deal is best keeps you ahead of the game.
Trusted Advisors: Thanks for sharing. I think these ideas were a more-than-fair return on the
price of breakfast.
TGIM Readers: I hope these ideas
were worth the investment of your time.
 |
| Sorry, Charlie. Guess there's no stopping progress. |
Geoff
Steck
Chief Catalyst
Alexander Publishing & Marketing
Chief Catalyst
Alexander Publishing & Marketing
8
Depot Square
P.S. “Business without profit is not business -- any
more than a pickle is a candy. Industrialist Charles F. Abbott (1876 – 1936) of the American Institute
of Steel Construction said that.
