1. Only authorized personnel should purchase anything
You have a problem if you allow anyone to buy anything, even small amounts of office supplies. All purchases must be authorized, and all transactions must be funneled through one central purchasing group. This is the only method you can control the purchasing process and maximize your purchasing power.
2. Are there significant savings by buying bulk or producing in bulk?
Yes, but only if it is the best use of your money. Also, make sure that what you buy or produce will be used within a reasonable time. You are losing money if you purchase or have unrealistic quantities in order to lower unit costs.
You might ask yourself, “Who would do that?” Let me give you an example. One company prints small folders that are sold to banks. To make selling prices more appealing, they wanted to achieve a lower unit price. They didn’t have a basis for projecting sales, so to realize a low per-unit cost of production, they produced 250,000 folders. They were able to offer the product at a low price per unit.
So far, all sounds good. They sold 10,000 folders over the next five years. The remaining 240,000 were thrown away. It’s quite a saving, don’t you think. They also had to be aware of the possibility of product spoilage or obsolescence.
They should have discovered a way of projecting sales. They should have used the projection to base production pricing and production on expected sales. Then they should have only run a small amount of test stock until actual sales are realized. Remember that you can’t pay too much unless the product you’re buying is actually needed.
3. Don’t follow the crowd!
Don’t buy if you find specific terms objectionable. Get clarification if you are unsure of any part of the contract. You can object to any section of the agreement by not signing it or striking it out. The sales representative will then sign the change and take the original with you. Add an addendum if you need a written record of items not included in the contract.
It doesn’t matter if the rep tells you something is standard or that the contract has been preprinted. You decide the terms. This relationship requires that you understand your position. It is essential to say it. That sentence’s key phrase is “until you say so.”
4. Analyze all purchasing patterns at least once a year
It is essential to ensure that your purchasing habits are most efficient. Quality, delivery, and prices should all be considered. You want to achieve the best of each. Check if your orders are delivered on time. Are the products of acceptable quality? Do you buy the right amount of items based on how often you use them?
The quantities that produce the lowest unit price are the right quantities. So, instead of buying an item every three months, why not order it every six months? You could save 15% to 25% based on the higher volume. Ask the right questions. These questions are crucial to your total Business Cost Control program.
5. Do not fall for unwelcome phone sales calls
These scams can cost companies millions each year. These callers will sell low-quality, overpriced products. Sales pressure can be very intense and can vary from aggressive and pushy to friendly and sneaky. They could sell anything from a mongoose or a snake to these people. Many of these people must be former politicians. Before you know it, one of your friends has approved a product you don’t need or want. This is how millions of dollars are lost each year.
This is a relationship between predators and prey. Which one are you?
Your best defense? Hang up. It’s likely that anything you hear sounds phony. You will find them offering closeout deals, overbuys, liquidating canceled orders, and any other type of scam to make your offers sound not only legit but also very attractive.
All offers must be submitted in writing. You won’t allow orders to be placed by phone, and you insist that purchase orders be written and checked before payment. This will ensure you are safe from any type of fraud. These are the types of procedures you are using, aren’t you?
Even if these items are something you would use, you can be pretty sure that the cost and quality of the products are too high. They will often offer a gift for approval and even ship it to your home.
This is done for two reasons. First, it sweetens your offer in order to sell the product. Second, it gives your sales company significant leverage if you try to cancel the sale by refusing payment or returning the merchandise.
If the person who approved payment attempts to return the item or refuse payment, they will first be asked how they liked the gift. They are reminded that they bought something. They may be threatened by others and could end up in trouble.
6. All of it in writing
Although this may sound obvious, it is not new advice. However, you’ll be surprised at how many times people and even you don’t follow this rule. To be able to evaluate the purchase, you must understand all costs.
It is essential to know what your performance expectations are. The ongoing consumable costs must be known. Maintenance costs must be known. It is necessary to know the costs of training. Shipping costs must be known. It is essential to understand all aspects of shipping costs for any item you’re considering buying.
It is impossible to understand what you are purchasing, how many you are buying, what you will be paying, the terms, when delivery is scheduled, or any other issues. These terms must be in writing. You can reference them on your purchase orders or modify any terms not acceptable to you.
These things can only be confirmed if they are in writing. The sales rep will tell you nothing. Do not assume anything. It should be in writing. It is easier to get it in writing if something goes wrong.
Derrick Welch, the 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.