Conducting a Fixed Operations Expense Review – Part 2

This is Part 2 in a three-part article. If you missed Part 1 you can read it here: Part 1. Be sure to check back next week for Part 3. | Written by David Dietrich

 Development of a “Supplies Purchased Listing”

Remember to maintain this listing.  As new products or services are used, add them to the listing in the appropriate place.

 Development of a Vendor Pricing Review Procedure and Vendor Bid Specifications

Shopping for the Right Price – make it a rule to never pay retail price for anything and realize that you can save 1/3 to 1/2 of the normal price on most items.  Like our vendors, we are in the retail sales business—how often do our customers ask, “Is that the best you can do?”  Ask your vendors the same question.

In our selling situations we ask for the order from customers—why not ask for the available discount from vendors?

Many of us treat the purchase of everyday supplies casually.  Consequently, we often develop a comfortable relationship with our vendors.  We may have been doing business with the same vendor for many years.  We may even assume that since we are getting a good price on one item, our friendly supplier offers us the best price on everything.

You cannot rely on only one vendor if you want to save money on your purchases.  Even if you have a primary supplier for most products or services, apply the test of comparison shopping for every item purchased regularly.

 Vendor Bid Specifications – Begin developing your Vendor Bid Specifications by reviewing vendor invoices and recording the products currently being purchased.  Include the quantity, packaging and frequency.

Once this data has been collected, you may consider splitting the list into more manageable sections.  Categorize each item with a priority identification code to identify the mailing sequence of the bid letter for that particular product or service.  We recommend this approach to avoid being inundated with bids on every item on your listing.

Obtain bids on the most frequently used (and ordered) items first.  After a reasonable time has passed and you determine you could handle more bid activity, prepare and mail the second priority group (perhaps in a 45 – 60 day time frame).  Following the second group, prepare and mail remaining required bid items in the same controlled manner until all priority groups have been completed.

Substitutions for brand names must be properly demonstrated or used on a trial basis prior to awarding the bid.  New and improved products are being developed regularly and you must be aware of them.  Purchasing power is in volume buying.  Your analysis of prior invoices and the usage forecast are valuable when determining order quantities, frequency, volume, packaging requirements and other product specifications.

The bid process is never-ending.  After you have completed your first round of bid specification mailings, begin planning the timing of your next effort.

A common misconception is that completing the bid process and occasionally revisiting this area are sufficient to achieve the desired reductions in operating expenses.  This is not the case—maximum benefit is derived only through a consistent utilization of the Vendor Pricing Guides.

 Development and Maintenance of Vendor Pricing Guides

Vendor Pricing Guides are designed to provide a detailed record of price agreements and a procedure to ensure that these agreements are maintained.  We often agree to a price and, over the course of time, find that the current billing price has changed.  The idea of bidding a product or service is to establish a price and then to protect it through the agreement period.  Vigilance in this area is imperative as many items are delivered at regular intervals over a period of time.

Continued next week in Part 3!

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