It’s Not Just About Item Pricing! It’s About Total Cost Management
The only way to guarantee true value for money in any procurement process is to look at the total cost of the solution. This requires absolute visibility and mechanisms by which costs can be consistently reviewed and managed. As a company we are very much focused on moving the conversation beyond individual item pricing to looking at the total cost of the solution to you the customer. By working intelligently with our customer base we have been able to adopt a winning five point supply model capable not just of meeting but exceeding the needs of our customers. This is how we do it:
- product range rationalisation
- best value for core list pricing
- automation of processes
- strong discounts on non-core items
- better demand management
Our partnerships with the biggest buying groups, together with our technology gives us access to significant purchasing power and service capacities which will free your organisation to manage its daily activities knowing that the systems are in place to ensure you get the most from every Euro spent. We provide unique tools to regularly review spending for every cost centre and for every product purchased in order to ensure that you secure the lowest total cost.
MYTH: the lowest contract price will result in savings. FACT: over the three years of a typical supply contract, large multi-national suppliers will use numerous formulas to raise the total cost.
Office supplies by its nature, is a difficult area in which to maintain complete pricing transparency. Reasons include the vast number of products to choose from, frequent changes in office machines and personal preferences, together with the impact of currency movements, all of which tend to confuse the picture and leave organisations exposed to the risk of significant decreases in buying effectiveness over time.
Within the tendering process itself, there is also a tendency to focus on core lists and specific product prices, with little exploration into best practice on total cost. Consequently, the focus on core lists gives customers the perception of buying the most competitively priced items, which in the short-term appears to result in a better value arrangement. This approach however ends up costing more!
In the long-term, suppliers pursuing higher margin product sales will begin to extract higher yields from a broader spectrum of non-core items, resulting in higher costs rather than net savings over the duration of the contract. From the customer’s perspective there are a number of things at play in bringing about this result:
- too many product variants in use within the average organisation
- infrequent and inadequate reviews of spending
- insufficient resources, controls or checks
- proper cost analysis restricted to large spend categories only
- too much discretion afforded to individual purchasers
- lack of IT capability to permit sufficient spend monitoring
MYTH: what you order is what you receive. FACT: one multi-national supplier with an operation in ireland is subject of 4 lawsuits for contract violation.
Product substitution is just one of the formulas presently being applied by larger office products suppliers to improve margin performance over the duration of a supply contract. Others include:
- inflated retail pricing in catalogues to give perception of greater discounting
- variances in actual prices paid vs. contracted prices because of:
- product substitution smaller pack sizes / lesser brands, and
- the impact of currency movements
- lack of transparency / management information
- below cost pricing on core items and excessive pricing on non-core items
Yours faithfully
