1. Have an open-door policy
You can control your costs by managing your competition. Therefore, vendors should be approached with open arms. This does not mean you have to meet every sales representative that knocks on your door. Efficiency is a critical factor in increasing productivity and reducing costs.
My point is to use common sense when choosing who and when you view them. But make sure you and your staff are constantly interacting with suppliers and vendors. Competitive bids are required for products and services your company purchases.
You will never achieve total cost control if you and your purchasing team only review prices from the same vendors year after year. You will never know whether you are getting the best value out of your existing suppliers and if there is a better source.
To get the best value for the people who do the buying, they need to be constantly looking at new products and services.
What if a new product is available that lasts twice as long and costs half the price? You might not know it exists if your supplier doesn’t offer the product or you don’t keep up with other suppliers’ product lines.
Your people should not be restricted to working with one supplier. You must encourage your people to be open-minded and not limit their ability to deal with the same suppliers.
2. A Great Source of Ideas
You will also benefit from working with a core group of suppliers and a rotating base of secondary suppliers. This allows you to be exposed to other ideas. These suppliers can be a great source of information about your market, trends, the industry, and competition. These suppliers can help your employees see things differently and find new ways of doing things. You may get new ideas to improve sales, productivity and reduce errors.
These people are in business to sell to your sector and other related industries. It is their business to be knowledgeable about your industry. You should consider the top suppliers and sales reps more than just a vendor. Consider them a resource, and don’t be afraid to ask questions.
They can and should be a great source of creative and innovative ideas.
Let me tell you about a real-life example. One sales representative called me from a company that sells printing material. He informed us of a new printing plate that provided better image reproduction, lasted 25% longer, and costs about 15% less than ours. All of these claims were true after we gave them a test run. These plates were the only ones we switched to.
There were many people calling us, but only one of them was an authorized distributor. Even if they wanted to, none of the other reps could sell us these plates. We might not have discovered these plates if we had only worked with one representative or a small number of regular agents.
This is only one example of the many I could offer. Reps have given me tips and helped me improve production. I also received employee leads and new product ideas.
3. Dual Signatures
All purchase orders exceeding a predetermined amount should be signed by two people. This will provide additional protection against fraud and lousy buying habits. You will also have another party that is familiar with the purchase available in case something happens to any of the signing parties.
In this instance, I suggest that the purchase order form include a space for a second signature. The printed words that indicate that any purchase orders exceeding the predetermined amount are invalid without the second signature would also be helpful.
4. Centralize purchasing efforts
This is the best way for maximum control and cost savings. It is absurd to have every department or division order what they need by themselves. Different branch locations cannot order what they need on their own. It is ridiculous to let each individual who requires something call it from their own branch. Having one source for all purchases will allow you to combine purchases to get the best prices and terms.
You will be able to work with a select group of best-value suppliers, which will allow you to get the most value and leverage from your relationships with them. These are the significant advantages of centralized purchasing over decentralized buying, which can rob you of cost control and reduce efficiencies and replace them with duplication and waste.
Note: I am well aware of the fact that purchasing small quantities or low-cost items from different departments and divisions can have higher costs than the savings on the purchase. To eliminate delays and internal costs, you might want to set a minimum level for purchasing that all departments can participate in. This subject is too complex for me to discuss in detail. It is merely a matter of your consideration.
Derrick Welch, an author of “In Pursuit Of Profits: How at Least Double Your Profits without Increasing Sales,” provided this edition of The Welch Report. This report includes 1,000 cost control, expense reduction, and income-producing strategies you can start using today to dramatically increase your bottom line.