How many times have you pulled into a gas station and wished you could buy your gasoline cheaper? You are paying retail at the pump. Do you know anyone who buys at less than retail? Maybe a trucking company that owns a large number of trucks? Maybe a business that owns a fleet of company cars for its employees? How do they pay less? They negotiate with a particular gasoline company and work out a discount in exchange for guaranteeing a set number of gallons purchased every month.
Now let’s go back to the trucking company for a moment. What do you think they do for tune-ups and on-going maintenance? Or when something goes wrong and needs fixed? Do they make an appointment at the local mechanic’s shop? Of course not; they have a team of in-house mechanics that take care of their trucks. What you may not know is the mechanics get paid a salary and they are not always busy. It depends entirely on how many things are going wrong with the trucks how busy they are. They could take some other jobs at a discount to what would have been charged at any mechanic’s shop. So this gives another small company a break. Let’s say they generate an extra $100,000 in billing by taking on other clients. Other than parts, the rest is pure profit.
As a purchasing manager what can you learn? These are your jobs. In the first scenario the trucking company gets a discount by negotiating with the gasoline company and guaranteeing a certain volume of purchases. Without a central purchasing system, even if it is operated manually by one person, you may end up approving multiple purchases for the same item from different vendors throughout the year.
Let’s take something simple like printer cartridges. Various departments may have different printer brands and models depending on their printing needs. Each department may search the internet trying to find the best price and think that they are saving the company money by getting the best deal they can find. If each department does that independently of one another they will likely end up ordering from many different vendors. Even within the same department they may order from different vendors throughout the year depending on who has the best sale prices at the time they are needed.
How would this be different with purchasing software in place? The purchasing manager, like the trucking company, can work with a single vendor and negotiate the best pricing across all departments for all brands and models of printers and cartridges needed throughout the company. As time progresses the vendor could even reward long-term relationships with other pricing breaks in the future. By ordering through that single vendor, both the vendor and the business can benefit.
In the second scenario with the trucking company they took on outside clients to keep their mechanics busy and increased their profit or in essence helping to finance the expense of that labor on their own trucks. Is there an opportunity to take on other jobs for employees who may be getting paid while having gaps in their workload? What about a sister company who doesn’t compete with you, but shares the same customer base.
Think about these strategies. Discuss them and see if you can build upon them. Find what works for your organization.