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A More Intelligent Approach to Purchasing: Cost vs Price

We have discussed in this blog on several occasions the various aspects of working as a procurement manager including negotiation practices that help both sides to win. Today we want to examine another aspect, a bigger picture approach to price versus cost. These terms are often viewed as synonymous, but to the purchasing professional there are significant differences and it is in those differences that we can find a winning solution to improving everyone’s position.

In many industries there is very little wiggle room in the pricing of the goods being offered. Purchasing managers who focus all their effort into trying to get the price per widget down by a certain percentage to feel they have achieved something may actually be running down a path of less and less benefit. Suppliers may have a little room to adjust pricing if certain conditions and quantities are met, but in the end, they still have limits to what they can do because they are obviously in business to make money as well.

That’s where we start to look at cost instead of price. What’s the difference? Looking at the total cost means examining all aspects along the supply chain until it reaches your door. This approach can yield far greater savings to you while leaving room for your supplier to make the percentage profit they need to be successful and everyone wins.

 You should begin to examine every process, the people, paper, or software involved and see where waste is occurring. If this is a regular vendor you do business with then look at past invoices and contracts. Forget the price per widget and look at the other costs involved in the process. There may be certain areas, delivery fees, or other charges that jump right out. Others may take a more focused effort to discover what areas changes may take place in. Only after full examination will you be able to come up with opportunities for cost savings. It may be that waste is occurring in your own organization through inefficient processes. Upgrading to cloud-based purchasing software, though requiring an initial investment of money and resources, can lead to significant savings. If you want to see how Bellwether Software can help reduce your total costs and improve your position contact us today!

August 20, 2013
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BY Bellwether
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