Is buying on price costing you money?

I once managed a team of print buyers.  Pete was one of the members of the team.  One morning he came up to me with a great grin on his face.  “Matthew, I just reduced the price by another £50,” he said.

I was delighted

“Yes, it took me three hours, but I got there in the end!”

My heart sank.

Pete had just cost the company a whole load of money

Remember the difference between price and cost

The fact us that focussing on price and price alone can end up being expensive.  You need to know the total cost of acquisition.  And one element of this is the cost of your buying process.

How can a lower price be more expensive?

Pete, or indeed any other print buyer, is a costly person.  There is the cost of

• salary
• national insurance taxes
• pension or other benefits
• office space
• IT overhead

So it is important to understand how much time they are spending on buying each job.  The money Pete had saved on the price was more than outweighed by the cost of his time

It is worth carrying out a quick calculation of a buyer’s hourly rate and working out how much you are spending on estimating a single print job.

But a buyer is a fixed overhead

It is important to make fixed overheads work smarter.  Instead of estimating a job, a buyer could be

• concentrating on cost reduction projects
• looking at how they could use print more effectively to improve the return on investment
• making sure that their jobs are on time and not costing a company money by running late
• investigating new suppliers

So how can you reduce buying time?

I am still surprised at how many companies still require their buyers to request three quotes for every job.  It is much more efficient to use price matrices for standard items.  Other options include using a web to print system.  Many suppliers can now offer a solution whereby simple costs can be calculated and the costing structure reflects the level of pricing that has been previously agreed.

Cheaper prices may be available in the spot market, but are they really cheaper when buying time is taken into account?

In addition, if you have a fixed term agreement with a supplier for standard items you can change your buying focus.   Instead of worrying about each individual job, it is possible to concentrate on the relationship and how your supplier can help you further.  That can be surprisingly rewarding.

And it’s definitely more rewarding than making sure your company’s print buying is more cost effective than Pete’s!

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P.S. If you have found this article useful you may also be interested in Print & Procurement’s training in practical purchasing.  Click here to find out more.