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How to save your business money with clever purchasing

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So you've found suppliers for your business stationery, office supplies and courier service, you've been using them for years and haven't got the time to shop around for a more competitive price. But are you really getting the best deal? It can never hurt to look at areas where you can tighten your belt, reduce your costs and run your business more efficiently.

  • Make sure you know where your costs are, and attack the biggest first. Apply the "80/20 rule" – typically 80% of costs come from 20% of your supply items or services.

  • Check to see if your business has recently tendered out the products and services purchased. If not, how do you know you are enjoying the best prices? Challenge existing suppliers to review their prices. If you're aware that prices are falling in a certain area, there should be room to re-negotiate prices with your suppliers.

  • Join a buying group for the most routine costs such as stationery, telecoms, utilities and cleaning supplies. This can free up valuable time to concentrate on the more critical, higher value cost areas such as salaries. The economies of scale achieved by such groups also deliver an opportunity for small companies to secure prices normally enjoyed by their largest competitors.

  • Communicate early with your suppliers if your company is struggling. They will appreciate your honesty and should do all they can to help you in the short term, perhaps by extending payment terms.

  • Work with your key suppliers to jointly review the supply chain and challenge how things are currently done. Could steps be taken to reduce total costs in the supply chain, which would be of benefit to both you and your supplier? Examples might be to consolidate orders to reduce delivery costs, consignment stocking and reduced transit packaging.

  • Consolidate the number of suppliers if possible – this will not only enable you to strengthen your bargaining position with suppliers, but it will also reduce the cost of administering each supplier's invoices, orders, etc.

  • Be sure that everything you buy is actually needed. Consider postponing buying decisions or possibly buy the product second hand.

  • Finally, introduce an incentive scheme that encourages all of your staff, not just those involved in purchasing, to come up with ideas for saving the company money. The reward might be an extra day's holiday for the member of staff who comes up with the biggest cost saving idea. The great thing about this idea is that it not only saves the company money, but also encourages a team spirit within the company and reminds people that wasting money can have a detrimental impact not just on the shareholders and senior management but on their own prospects.
About the author
This article was written by Matt Roper, MD and founder of the Buying Support Agency, developed specifically to help small and medium sized businesses to improve their purchasing practices and thus become more profitable via reduced costs and greater business efficiency.
The Buying Support Agency also offer members of the Forum up to 35% savings across a wide range of products and services, including a guaranteed minimum saving of 15%, plus a free purchasing appraisal.

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