When you are fighting to achieve maximum cost savings, every penny counts, making it easy to get carried away. Aiming to purchase every item at the lowest possible price can, or waiting until the last possible moment can, in the end, cost you more. But good procurement is about setting the right strategies to meet your overall objectives, aligning your procurement actions with your values, and avoiding the pitfalls that hurt your bottom line.
For cost savings that actually hit your bottom line and improve your dental practices EBITDA, let’s review some basics that may be taking a bite out of your bottom line.
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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.
Apples to Apples
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.
However, 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 onto a separate purchase order may only serve to overburden your employees and lessen the efficacy of your efforts.
Every PO you issue requires:
- Gathering of supplier information
- Completing a credit application
- Setting up the supplier as a payable account
- Purchase Order entry
- Sending the order to the supplier or entering it online
- Confirming receipt of the order and ability to deliver as required
- Order tracking
- Physical receiving of delivery
- Verification of items and quantities received
- Barcode scanning or manual data entry of receipts
- Putting away of items
- Handing of the paperwork to finance
- Payment of the invoice
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 less transactional purchases you should be doing.
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.F
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.
Quality and Regulatory Requirements
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 do your homework, run tests, and review any necessary regulatory documents.
Help guide your employees’ decision-making and ensure your cost savings initiatives align with your values, so they know when to save and when to prioritize quality.
Use Method to Keep Track
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!