Economic recession and trimmed budgets are driving the need to save money wherever you can. These five tips will help you renegotiate vendor contracts, maintain pass-through with corporate initiatives, and drive efficiencies.
1. Maintain Compliance with Corporate Initiatives
Review the major projects your team has rolled out over the last year or two and ensure that your organization is maintaining high compliance to these initiatives and to peripheral terms such as early pay discounts. You have already completed the hard work; so make sure you are still seeing financial pass-through. Ask yourself:
- “Are the business owners still clear on the direction we took, the financial impact and their role in delivering the results?”
- “Do I have visibility to the financial results?”
- “What is my governance process for ensuring continued compliance?
2. Negotiate Raw Material Prices
Whether you are a direct material buyer or indirect commodity buyer, you are purchasing raw materials in the form of paper, poly, fuel, etc. Whether you have agreements indexing your purchase price to the material markets or pay a fixed commodity price you should go back to your suppliers and make sure you are receiving any reduction in the material costs. As general economic demand falls with a recession, so will material prices. I’m sure you were charged when material and fuel prices were on their way up, so make sure you take advantage of the fall.
3. Focus on Reducing Non-Variable Expenses
Most purchasing departments are focused on variable expenses as business increases. As business stagnates or declines, non-variable expenses increase as a percentage of overall organizational costs. If purchasing has not been involved in driving efficiencies in areas such as travel and expense, facility services, tax appeals, etc., then now is the time. Ask yourself:
- “How can we help facilitate the visibility into what is efficient use of these budgets?”
- “How can we help communicate direction and expectation of new initiatives?”
- “How can we help with compliance to the new initiatives?”
4. Working Capital Savings
The cost of money or working capital is often overlooked in cost analysis. Your organization will incur a working capital cost (be it actual financial charges as APR or opportunity cost) in performing every day activities. Such activities include funding prepaid agreements such as maintenance and break fix, paying for excessive inventories, paying for high material obsolescence, etc. Through tighter controls you can quickly add working capital savings to your list of results.
5. Benefit from Shifting Exchange Rates
As the world moves into global recession there has been a major shift in exchange rates over a short period of time. If you buy international directly or indirectly through a distributor, look to be on the right side of the exchange movements. Be sure to rebalance within your approved supply chain based on the new rates or encourage your distributors to allow you to do the same within their supply sources.
Want to learn more? You can contact Kerry James at ask@archway.com.
About the Author:
As Director of Purchasing, Kerry’s responsibilities include supply chain planning, contract administration, print production, and the procurement transaction process. Kerry focuses on providing clients with a sourcing network as an extension of their own sourcing team along with best in class pricing. Kerry has over 10 years experience in strategic sourcing and supply chain management with organizations such as Hitachi, Accor North America and CVS/Caremark.