When you are fighting to achieve maximum cost savings, it can be easy to get carried away and make rash decisions based on a number on a screen. Although, given today's financial and competitive climate, it may seem penny-pinching is necessary, aiming to purchase every item at the lowest possible price or waiting until the last possible moment can, in the end, cost you more.
Good procurement is about setting the right strategies to meet your overall objectives, aligning your procurement actions with your company values, and avoiding the many pitfalls that hurt your bottom line.
For cost savings initiatives to actually impact profits and improve your organization's EBITDA, all cost drivers must be taken into account. And for negotiations to be successful, price comparisons must be fair and accurate.
Let’s review some procurement basics your employees may be missing that could be taking a bite out of your margins and reducing the efficacy of your efforts.
When comparison shopping, it’s essential to perform a full net cost comparison by ensuring you include shipping costs or any other fees or additional charges. You want to avoid cutting a separate purchase order unless you net out actual savings. If you have preferred or strategic vendors, find out how you can reduce or eliminate shipping costs. There may be better ways of bundling your orders, or it may be as simple as making the ask for a reduced rate.
When it comes to negotiating, it’s crucial to ensure you’re comparing apples to apples when doing your price analysis. Suppliers aren’t likely to meet or beat a price for an item they don’t consider equivalent to what they’re offering. For example, you may want to compare a private-label product price to a brand-name price to see if it’s worth making the switch.
When it comes to negotiating and rating your suppliers on price competitiveness, the comparisons should be fair and equal, i.e., private labels to private labels. For brand name products, reference product identification numbers for accuracy.
Also, don’t let packaging or units of measure trip you up. If pricing is per box rather than per unit, so make sure you do the math and break out pricing for accurate and fair cost comparisons.
It’s important to remember that hard cost savings aren’t everything. Although the actual costs aren’t easy to quantify, labor costs are an essential consideration, especially in a busy office environment where staff often have conflicting duties.Overdoing it by splitting every purchase into separate purchase orders may only serve to overburden your employees while increasing your labor costs
Every PO you issue requires the following:
Remember, “soft” savings count too, and in the end, your goal is ultimately to do more with less and ease your employees' workload when it comes to procurement, so they can remain focused on the tasks they were hired for.
Every purchase is an opportunity to leverage your volume and create a strategic competitive environment. This makes every transactional purchase with an unproven vendor and without a specific intent or strategy a lost opportunity. Unless it’s part of your procurement strategy, the more you mature in your dental procurement practices and supplier management, the fewer transactional purchases you should be making.
Part of supplier management is helping your suppliers grow their volume, and of course, the same in the inverse- your suppliers should be supporting your growth. If you find better pricing online, allow them to match, or better yet, do better. The extra volume will motivate them to keep providing you with their best pricing and top service while allowing you to conglomerate your orders, creating less work for all.
Recognizing cost savings often comes down to increasing order sizes. However, for most organizations, cash is king, and achieving the right balance between maximizing your savings and maintaining healthy cash flow is imperative to your organization’s financial health.
Weighing the status of your cash flow against your need for cost savings and service should be part of setting your values and objectives. However, it never hurts to at least try and negotiate longer payment terms with preferred and strategic vendors.
Also, when selecting preferred vendors, make sure to factor in lead time to your decision-making. The longer it takes for dental supplies to deliver, the more you need to keep on hand.
Yes, there are potentially decent cost savings for moving to a private label or another lower-cost brand you haven’t tried before, but lower-quality products can come with risks, so make sure you run any trials, review any necessary regulatory documents, and garner feedback from end-users.
Procurement often comes down to managing trade-offs. Meaning, perhaps you can get a product at a lower price from a new supplier but need to wait longer for delivery. Or, you have the opportunity to save by moving to a private label, but although the quality is close, it’s not all the way there.
Help guide your employees’ decision-making and ensure your cost savings initiatives align with your corporate objectives and values so they know when to save and when to prioritize other areas such as service and quality.
Yes, every penny does count, but it’s how you count your pennies that really matters. Cost savings initiatives on dental supplies often involve changing to a slightly different product or introducing a new supplier. As crucial as those savings may be, recognize that these changes come with their own set of risks to be mitigated. A robust vendor approval process and new product testing procedures are vital to safeguarding your business. So remember, slow and steady wins the race.
With Method, you can easily put in the safeguards you need and keep track of your inventory management process. To learn more, contact our dental procurement experts to see a demo today!
