Many building owners believe the value of an optimized procurement program is reducing costs—and while that’s very true, it’s only part of a bigger picture. Realized savings on every purchase can actually help you increase the value of your property.
That’s why we wanted to share five ways that you can maximize your cost savings and your property value:
1. Consider Total Cost of Ownership
This metric seems obvious but is often neglected in the rush to find suppliers. Total Cost of Ownership (TCO) includes all the costs to acquire and maintain a product during the entire period of ownership. To simplify, the total cost of buying a home is not just the price you pay to get the title. It also includes factors like closing costs, commissions, repairs, renovations, PMI, insurance, and possibly HOA fees. A new home with a higher purchase price may end up having a lower total cost of ownership than an old home at a lower purchase price that needs extensive renovations.
Likewise, a product’s total cost of ownership should include things such as acquisition and storage costs. For example, if your company isn’t managing inventory well, you may end up using costly warehouse space to store items that would be better managed through an auto-replenishment system that triggers at a certain level of inventory depletion. Also, consider shipping costs—an existing supplier may have a slightly higher cost for an item, but you might be able to save on consolidated shipping. Plus, don’t forget that selecting a new supplier involves additional costs, like site visits for vetting and auditing, as well as employee time spent on RFPs and setting up and processing payments.
This is defined as everything outside the purview of the large, managed purchases that most companies monitor quite stringently. In other words, these purchases are small and often overlooked. However, many companies are waking up to the fact that tail spend chaos often hides waste and even fraud, so it is a prime savings opportunity.
As we’ve pointed out previously, attention to tail spend often makes a significant difference in terms of profit. So, why is it so often overlooked? The answer is usually quite simple—companies are traditionally focused on larger purchases.
If your company seems to have maxed out savings opportunities, managing tail spend can help you find new ways to save. If you don’t have resources to devote to this yourself, a managed service could be a good solution.
3. Enforce Employee Compliance
So, you’ve found excellent suppliers and you’ve spent the time to negotiate contracts. What’s next? The short answer: compliance. You need to ensure that your employees actually purchase from your contracted suppliers, instead of running to the local office supply store for toner cartridges or buying from an uncontracted supplier, just because their sales rep brings donuts to the office once a month.
There is now a technology available that makes compliance easy by notifying buyers of lower prices from your contracted suppliers while they are on uncontracted supplier websites. The savings can be significant; you can lose from 10-25% in savings from noncompliance alone!
4. Institute Price Auditing
If you’re optimizing your procurement plan, this is a crucial step. Price auditing ensures that your company actually receives the price you’ve negotiated under the supplier contracts. After all, mistakes happen—but you want to be sure to nip any issues in the bud. Another reason to audit is the prevalence of dynamic pricing. Suppliers can change the cost of items at any time, and regular auditing ensures the price reflects your negotiated one.
5. Look Outside Your Industry
It’s easy to be laser-focused on developments within your own industry—which is great, but don’t forget that you can also learn from other types of businesses. For example, grocery store chains excel at creating efficient, sustainable, and replicable procurement processes across all their stores. Another example is the hospitality industry, where procurement was really refined and perfected using group purchasing organizations (GPOs), an arrangement that leverages collective purchasing power to get the best prices on items.
If your company could use some help thinking strategically about your procurement program, Qmerit offers a managed service that strategically aggregates mid-tail, tail and rogue spend for Maintenance, Repair, and Operations (MRO) in buildings. We offer ongoing supplier negotiations, account management, compliance, adoption, and a consumer-like eProcurement platform for no-cost price comparisons. Basically, we let you outsource the trouble of instituting money-saving relationships at no cost to you. If you’re interested in learning more about how we can help your company cut costs, please send us an email or give us a call.