the recent knock in the value of the rand, a reasonably achievable reduction in
purchasing costs of 5% makes a huge difference to the bottom line of a
business. A fresh look by procurement officers at procurement practices
could provide opportunities to minimise purchasing costs.
Constantly chasing profits or minimising losses by increasing sales volumes and sales prices is exhausting and very difficult in the current economic climate. So too is cutting overheads by retrenching labour, which is difficult and costly due to the requirements of labour legislation.
One way to increase profits is to aim for a reduction in purchasing costs of just 5%, which is reasonably achievable. This reduction makes a huge difference to the bottom line of a business. For example, with purchases of one million rand, a 5% reduction would add R50 000 to the bottom line.
Procurement Officers, therefore, play an incredibly important part in a business by improving profitability and the resultant return on investment by minimising purchasing (input) costs.
How can a procurement officer reasonably reduce these purchasing costs? Here are the key strategies to consider:
1 - Increase your trade discounts - arrange a trade discount in return for supporting the supplier up front. These discounts could be 15% or even higher.
2 - Increase your volume rebates - by purchasing in greater volumes, a business can qualify for a volume rebate of 5% or more.
3 - Negotiate better pricing - quotations and tenders usually result in lower purchase prices – there is more competition and suppliers are usually prepared to cut their profit margins in order to get the business.
4 - Get better payment terms - the longer the negotiated payment terms the better the utilisation of cash in the business. This means that interest can be earned on cash in the bank or less interest has to be paid on a bank overdraft.
5 - Request cash discounts for early settlements - a business can request a settlement discount in order to reduce purchase prices.
6 - Do things smarter - consider combining collections of goods to save time and vehicle costs; there are many other such opportunities.
7 - Try to plan ahead - another area where prices are not optimised is where pressure is exerted on Procurement Officers to obtain products and services at short notice – normally where the person requisitioning the product or service has not taken into account the length of time needed to order the items or services in question. Previous suppliers are then used without a quotation being obtained. Planning ahead by finding out the company’s needs in advance potentially saves you for paying a premium for a last-minute order.
With the rand rapidly losing value recently, a fresh look by procurement officers at procurement practices could provide opportunities to minimise purchasing costs.
Contributed by: Stuart Christie, a Senior Facilitator at Bespoke
Article first appeared in Bespoke Procurement Bulletin:http://www.bespokesourcing.co.za/blog/77795-profit-and-the-impact-of-procurement-officers-by-stuart-christie