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PURCHASES OF STANDARD ITEMS
It seems like every brother and his aunt is in the supply
business, whether it is pens or packaging. There are hundreds
of mail order firms as well as commission salespersons,
hawking products.
Earlier, we emphasized that the best price is obtained by
measuring your specific needs, and for supplies, it's critical
to do this. A monthly or annual, average usage figure, on each
item (or at least the most commonly used items) will gain you
substantial, price advantage when you negotiate with a
supplier. Vendors often give you a great deal on some items
(your high profile ones) and then charge all the market will
bear on the lower volume items. No vendor gives away the store
on the whole assortment. Forewarned of this practice, you must
first have a good idea as to what you need. A dollar and/or
item, volume figure will achieve your desired results. The
proper method to obtain the overall best cost is as follows:
1. NEVER tell the supplier what you pay for an item elsewhere.
All this will do is prevent you from finding out how little
you have to pay for an item. Working on commission, the
salesperson benefits most by keeping as much of the price for
his employer. You want to get to the lowest possible market
price. Your supplier is paid to keep you from that point. To
find the market bottom, you must fish without radar. 2.
NEVER tell the supplier what you are willing to pay for an
item. 3. NEVER tell the supplier that he is your favorite,
most likely to obtain your business when the smoke clears,
etc.
This act will give the supplier sufficient confidence as to
prevent you from finding out how little you have to pay. The
customer never wins in this instance. 4. INSIST upon a
single quote, whereby his chances are either a Pass or Fail,
with no second chance to re-quote. This action is your best
possible choice, to guarantee fairness during the selection
process, for all participating vendors and to get to the
market price in the least amount of time. When you have
received your quotes, you must take the estimated quantity
purchased (never guarantee a certain volume) and multiply that
quantity by the price quoted. The sum of all items is your
expected monthly/annual purchases. The vendor with the lowest
total wins, assuming price for identical items is the only
criteria. The first two examples illustrate the wrong method
of evaluating vendor bids, while the third example is the
appropriate method of determining your true cost of product.
It is important to remember that it is not the discount that
matters, but for how much you have to write the check!
Example #1: Sum of each vendor's bid -
known as Basket Cost
Vendor "A"
Vendor "B"
Description
Item #
Bid Price
Bid Price
Pen
12-001
.80
.75
Marker
33-1200A .20
1.00
Paper/Ream/Xerox 12-345
2.20
2.21
TOTALS
3.20
3.96 Vendor B = 24% higher than A
Example #2: Percentile difference
between each vendor's bid (vendor "B" / vendor "A" price)
Vendor "A"
Vendor "B" % Bid
Description
Item #
Bid Price
Bid Price
Difference
Pen
12-001
.80
.75
<6.25>%
Marker
33-1200A
.20
1.00
500.00 %
Paper/Ream/Xerox
12-345
2.20
2.21
.455 %
TOTALS
3.20
3.96
494.205%
In example #2, vendor "B" would be almost 500% higher in his
prices than "A", if you make the mistake of adding the
percentile differences in prices.
Example #3: Quantity ACTUALLY
CONSUMED times Price - the best method of evaluation
Average Vendor "A" Vendor "A" Vendor "B" Vendor "B"
Description
Item # Monthly Qty Used
Bid Price Total Price Bid Price Total
Price
Pen
12-001
200
.80
160.00
.75 150.00
Marker
33-1200A
2
.20
.40 1.00
2.00
Paper/Ream/Xerox 12-345
10
2.20
22.00
2.21
22.10
TOTALS
3.20
182.40 3.96
174.10
$174.10 / $182.40 = 0.955
Vendor B is lower in cost, based upon historical estimated
purchase quantity. A bargain, using the market price
difference, is no bargain if you are unable and/or unwilling
to utilize it. Of course, do not forget to factor in terms, to
get effective net.
You want to use method #3 because vendors have a sneaky way of
messing up the figures, by throwing in super-low prices on
items you do not consume in great quantity. Some buyers are
likely to count the number of items that are lower than the
next vendor. From a supplier's viewpoint, if I believe you
will act this way, then I will quote low-volume items at
prices as ridiculous as one cent. Knowing my loss to be
marginal, I will recover all losses on the large volume, large
profit items. This simple, math effort virtually eliminates
the peak-and-valley pricing. 5. You should guarantee the
vendor exclusivity, during the term he is willing to offer
firm prices, or twelve months, whichever is shorter. 6. You
should inform every vendor as to why they won or failed in the
selection process. This is fair and will instill a note of
optimism for future bid efforts. If you fail to inform
everyone as to why they won or lost, you may find the field of
candidates in future efforts to be rather thin. After all,
most industries are small, and word about perceived or actual
unfairness gets around, which can result in firms deciding not
to waste their time. 7. Avoid the "Price Club" Trap. Many
well meaning employees believe that it costs less to go to the
discount retailer, instead of contracting for goods through a
supplier. To their credit, individual consumers and very small
firms will obtain better prices through this source. In fact,
for the purchase of "grocery store" items, I found that up to
5% could be saved by buying food items at the discount
club-type of store, even after factoring double coupons!
However, for larger firms, with over 15 employees, the
club-type of store was not cost advantageous for the purchase
of office supplies.
The factors are:
1. Staff time, your cost for someone to create a shopping list
(include disruption of others required to determine needs and
just to chat), round trip (drive & transaction time), and lost
productivity (staff member is not available to perform the job
he/she was hired for).
2. Vehicle allowance: cost per mile to make round trip.
3. Liability risk: any accident while on the job could cost
your firm plenty.
4. Terms of sale: no credit is available, you must pay upon
demand. This requires a blank check, reimbursement, etc.
5. Product availability: club store buys deals, and does not
promise to consistently have what you are looking for at the
time you require it.
6. Quantity/volume difference: Check the number of ounces or
pages. Oftentimes a package of something LOOKS like the same
size as the items you have always consumed. Computer paper may
be thinner or contain fewer pages per box, while liquid
white-out may be off 20% in ounce pack.
RESULT: I have never failed to obtain less than a 20% savings
on the first go around. For firms with more than fifteen
employees, the savings is well worth the effort.
Bottled Water, Disposable Towels & Other Perks
Now, oddly enough, the topic of bottled water can become very
political in most work environments. It seems that many
workers believe this commodity should be available upon
demand, and in unlimited quantities. Oh, I know, most of the
users would never pay to have it in their homes. After all,
the stuff costs almost as much as gasoline! For communities
where the water quality is a real problem, I recommend using a
reverse osmosis/filtered device, on either a monthly rental of
approximately $25 per month, or a direct purchase. Where water
consumption is not an issue, I would allow employees to
contribute to a water fund, and not offer the item as a perk.
Regarding paper towels & cups, for the sake of both the
ecology AND your wallet, insist that everyone become
responsible & bring their own glass cup from home. The firm
should provide reusable cotton towels, and either designate an
employee or a vendor to clean them periodically. Use a
proactive solution to other petty expense areas that can add
up to a lot of money, such as pest control. Got bugs? Buy
spray or bomb at the grocery store and use it, there is seldom
a need to hire a vendor. Just Do It! |
